In most cases, you probably shouldn’t waive the appraisal contingency since it essentially ensures you pay what the house is worth. While the home buying process can be quite involved for first-time buyers and seasoned homeowners alike, we recommend not skipping this crucial step. Whether you’re buying your dream home in Glendale, CA or a vacation house in Providence, RI, keep reading to see if you should include or waive the appraisal contingency.
Key takeaways
- An appraisal contingency protects the buyer financially and is often smart to include.
- While it’s risky to waive an appraisal contingency, you may choose to if you’re paying in cash or are confident in the property’s value.
- Waiving an appraisal contingency could also make your offer more attractive, especially in a competitive market.
What is an appraisal contingency?
An appraisal contingency is a clause added to the real estate purchase agreement that allows the buyer to negotiate or back out of the sale if the property appraisal price comes back lower than the agreed-upon purchase price. This clause protects the buyer from purchasing a home for higher than it’s worth, according to the real estate appraisal.
Pros of an appraisal contingency
- Financial protection
- Negotiation leverage if the appraised value is lower than the purchase price
Cons of an appraisal contingency
- Potential weaker offer (a seller may prefer an offer with fewer contingencies)
- Regnegotiation changes
How does an appraisal contingency work?
- The buyer and seller agree upon a purchase price.
- The buyer has a licensed appraiser evaluate the property to determine its value.
- If the appraised price is equal to or greater than the agreed-upon purchase price, the sale proceeds.
- If the appraised value is less than the agreed-upon purchase price, the buyer can renegotiate, request repairs or upgrades be made, or walk away.
Should I waive the appraisal contingency?
You can waive an appraisal contingency, but in most cases, it’s a good idea to keep it.
Consider waiving the appraisal contingency if:
- You’re paying in cash: If you don’t need financing to purchase the property and are comfortable assuming the risk, you may not need the contingency. Plus, waiving it can make your offer more attractive to the seller.
- The property is in high demand: If the property is in a highly competitive market and there are multiple offers, you may not need the contingency to negotiate a lower price. Waiving the contingency may also make your offer more competitive.
- You are confident in the value: If you have done research and are confident that the property is worth the purchase price, an appraisal contingency may not be necessary.
If you do decide to waive the appraisal contingency and the property does not appraise for the purchase price, you may be responsible for making up that price difference in cash.
FAQs about waiving an appraisal contingency
Have more questions? See below for some waiving appraisal contingency FAQs, answered by the Redfin Real Estate team:
Why should I include an appraisal contingency?
An appraisal contingency ensures financial protection and allows you to walk away or renegotiate the deal if the appraised price is lower than the agreed-upon purchase price.
Do I have to pay for the appraisal?
Typically yes, the homebuyer is responsible for paying the appraisal as a part of the closing costs.
How much does an appraisal cost?
The cost of an appraisal varies and can range from a few hundred to several hundred dollars, depending on the property’s location, size, and complexity.
How long does an appraisal take?
An appraisal can take anywhere from a few days to a few weeks, as it’s dependent on the appraiser’s workload and the property. While an appraisal is considered valid for 120 days, the appraisal contingency deadline is typically 7-10 days.