Appraisal Contingencies: Avoid Overpaying for Your Property

Posted on: August 20, 2014

Sometimes, the perfect home presents itself at an inopportune time. If you’re not prepared to buy but stumble into a great deal, it can be tempting to take owner financing or other non-traditional financing options in order to buy your dream home. Owner financing, lease options and mortgage assumptions all make tempting opportunities if traditional financing is beyond your reach due to credit, income, downpayment or other concerns. In other cases, it might just seem like a deal too good to be true, with no need to pursue traditional financing, especially considering all the stories in the national media as of late on how hard traditional financing is these days. If you’re considering an alternate financing deal, or if you’re a first-time homebuyer, you may want to consider adding an appraisal contingency to your contract. If you have the help of a local, trusted real estate professional, they will work to make sure the appraisal contingency is part of your purchase contract.


What is an Appraisal Contingency?


Like other types of contingencies, appraisal contingencies give you a loophole to withdraw from or re-negotiate a deal based on the results of an appraisal. When you negotiate an appraisal contingency, be specific about the terms. Set a minimum dollar amount, and give yourself the opportunity to re-negotiate or withdraw from the deal if the appraisal comes in too low. Likewise, name your own appraiser, if you are using alternative financing methods. If you work with an appraiser selected by the seller, you could be looking at inflated numbers designed to push a home sale through. Here’s another opportunity to enlist the help of a local, trusted real estate professional to help you in this appraiser selection process. If you use traditional financing, the appraiser will be selected by your lender automatically as part of the mortgage approval process.


Protect Yourself from Overpaying


The idea behind an appraisal contingency is to protect yourself from paying too much in a home deal. This is a serious danger in non-traditional financing situations, such as owner financing, lease-purchase options and mortgage assumptions. Without a lender evaluating the property and the deal and without a real estate professional helping you to determine the proper asking price upfront, sellers may find it easier to slip an overpriced home or unfavorable terms into the contract.


A classic issue for first-time buyers and non-traditional financing deals is to focus too much on the amount of money down and the monthly payment, and not enough on the price of the property. Beware of deals that seem more attractive than they are, and let an impartial appraisal make the final decision on your purchase deal.


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