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What is a Contingency?

  In my last blog I discussed what Pending means in Real Estate and I stated:   Anytime I say Pending, it means the house is under contract. Either with a contingency or not, the house is more than likely going to another buyer. It's just a matter of time until it closes and the new homeowner will be moving in. So what is a contingency?  Well a contingency in a contract is anything that must be first met to allow the sale to continue in the manner in which the contract was written. Most contracts have standard contingencies to include a home inspection, a financial contingency and an appraisal contingency. Other contingencies could include a home sale.  Home Inspection Contingency: This contingency allows the buyer to preform a home inspection (all home inspectors in the state of Virginia must have a license) and the buyer has the opportunity to ask for repairs in order for the contract to move forward. Sellers at this time can a couple of things. Repair all items Repair some it

Why is an Appraisal Important When Buying or Selling a Home?

One the biggest components in buying a home when a lender is involved includes an appraisal. If you buy a home with cash and sometimes with a conventional loan, you can bypass this step. With an FHA loan and an VA loan, you cannot. 

What is an appraisal? 

In simple terms and Appraisal is a valuation of property. 

An appraisal ordered for the purchase of a home is to determine if the price agreed upon by seller and buyer is acceptable by the lending institution. If an appraisal comes in low, the lender will likely decline to fund the deal. Unless the buyer is willing to come to the contracted price the deal to purchase can fall apart. 

So what happens if the Appraisal come in Low?

Sometimes a buyer will pay over the appraised value in order to buy the home. Sometimes the seller will lower the contracted price to the appraised value in order for the deal to continue. Sometimes the deal falls apart. 

Loan types will determine what you can do as a buyer to get past the low appraisal. A conventional loan and a FHA loan allow you to pay over the appraised price. A VA Loan will not. 

As a Realtor, I have seen many deals come to a virtual halt when a low appraisal comes in. The listing agent, if they are really good and a fighter for their seller, will be allowed by the appraiser to submit comps that justify the price the contract contracted under. In the years I have been in business, an appraiser is not very likely to adjust their price. That does not mean your agent should not try. Some have been adjusted because a mistake was found or because an essential comp was left out. I wouldn't get my hopes up though if I am a seller though. The appraisal is rarely reversed. 

The issue for the seller and the appraised value really comes to a head though when the buyer is trying to finance the purchase with and FHA or VA loan because the appraisal stays with the house for Six Months. This means if the contract falls apart. the seller is not going to be able to sell the home with anyone else who is trying to buy the house with a FHA or VA loan. The only possible way forward with this price is hoping a buyer with a conventional loan or cash comes along. This is typically when the seller will agree to lower the price to the appraised value and move on with the sale.

How Can Sellers Protect Themselves When Selling from an Appraisal?

I know many of you have seen houses on the market that you have no clue how they think they will ever sale for that asking price. I know, I have. They probably won't. They will sit on the market until the seller finally realizes that the asking price is a pipe dream which is unfortunate because instead of pricing the home at market value and selling, they instead continue to pay a mortgage on a house they no longer want and the house's DOM (days on market) for the seller to continue to lower the price making the house look like something is wrong with it. A recipe for low ballers. 

So what can you do as a seller to make sure you aren't leaving money on the table? Go ahead and get an appraisal before you decide to list. You can even ask the appraiser if  there any upgrades you can do before listing that will up that appraisal. Some agencies, like mine, will even pay for the appraisal for you if you decide to list the home with that company.

Working with a Realtor who realizes these hurdles before they arise will make selling a home less painful. 

Please feel free to comment or message me with any questions.


Leigh Ann