Why You Need An Appraisal Contingency
When you buy your first Knoxville home, there are certain contingencies that should be included in a contract to protect your best interest.
Generally, there are three common contingencies that are included in a real estate contract. There is usually an inspection contingency, financing contingency, and an appraisal contingency. These three are typically included in a contract to help protect a buyer. That way, if a home doesn’t appraise or a buyer is unable to secure financing, the buyer is protected.
In this post, we’ll take a closer look at the appraisal contingency and why you need it when you buy a home.
First: What’s A Contingency?
A contingency in a real estate contract is a condition or action that must be met before a contract becomes binding.
Typically, real estate contracts include three different contingencies that protect a buyer. Here are the
- Inspection contingency that allows a buyer to inspect a home before buying it. If major issues are found, a buyer can either negotiate repairs or walk away with his or her earnest money.
- A financing contingency ensures that a buyer will not be held liable if they’re unable to secure financing.
- An appraisal contingency ensures that a home must appraise for the purchase price or higher.
These contingencies help protect a buyer. If one of the scenarios isn’t met, a buyer is able to walk away with their earnest money.
What Situations Call For This Contingency?
In a majority of cases, first-time buyers need to secure a mortgage in order to buy a home. Lenders will require that an appraisal be done.
Mortgage companies require an appraisal because they don’t want to be lending more money than they need to. When a home doesn’t appraise, a mortgage company will not be willing to lend a buyer as much money. Mortgage companies are concerned about this because if a borrower falls behind on payments, they don’t want a home to have a loan on that’s way more than it’s worth.
In cash transactions, appraisals are only required if a buyer opts to get one. There are some cases where a buyer wants to confirm the value of a home so they’ll opt to get an appraisal.
What Happens If An Appraisal Comes In Low?
There are certain times, even in a seller’s market, where a home doesn’t appraise. When that happens there are a few different ways that a buyer and seller can resolve the situation.
Here are typical options of what happens when a home doesn’t appraise:
- The seller can reduce the price of a home
- The buyer can make up the difference in price by bringing more money to closing.
- Buyer and seller can come to an agreement on how to make up the difference together.
- Or, in some cases, the buyer can request a second appraisal if they feel like the first appraiser missed something.
For some reason, if the buyer and seller can’t come up with an agreement, the contract can be terminated.
Why Does It Matter?
You don’t want to pay more for a home than you have to. An appraisal contingency helps protect you from a home not appraising. If you can’t come up with an agreement with the seller, you’re able to walk away from the transaction.
Are you thinking about buying a home this year? Please let Knoxville Home Team know if there is any way that we can assist you in your Knoxville home search. Rick can be reached at 865-696-9002 or via email at Rick@KnoxvilleHomeTeam.Com. Kati can be reached at Kati@KnoxvilleHomeTeam.Com.
Also, be sure to check out our Knoxville Home Search Page to see what homes are for sale in the area.