In hot Real Estate markets, buyers seek out ways to rise above competing offers on a home. Within the appraisal part of the buying process reside opportunities for buyers to give a little to gain a sellers favor.
Removing Appraisal Hang-up’s from Offers
Buyers and buyer’s agents may tap 2 areas in order to appease and ease sellers. The end goal – to outshine the next buyer/offer in line. In fact, the below simplify the selling process for the seller. Each increases the chances for a successful closing. Aside from sounding confusingly similar, the pair of choices below are very different:
Both of these impact the buyer’s loan process specifically in the appraisal area – albeit in very different ways. Sellers may prefer a buyer using one or both due to each removing potential obstacles from the home buying process.
Waiving the Appraisal Contingency
Buyer’s that waive the appraisal contingency forfeit their right for low appraised value protection. In other words, the appraisal contingency allows buyers to walk away from a contract with their Earnest Money in hand when a subject property appraises below sales price. Buyers give up this protection by waiving the appraisal contingency.
In competitive situations, sellers sifting mounds of offers may favor buyers who waive the appraisal contingency. Removing low appraised value issues stacks chips in the seller’s favor. It protects sellers against low value hurdles and buyer’s cancelling due to the same.
On purchases, a buyer’s loan amount is based on the lower of the appraised value or sales price. When sales price exceeds appraised value, buyers must pay that difference out of pocket. Buyers waiving the appraisal contingency take on the risk of putting themselves in this predicament.
Appraisal Waivers are Great Too
Appraisal waivers allow buyers to skip the appraisal. Buyers and sellers both might like this other type of waiver. An appraisal waiver stamps a lender accepted value on the subject property sans appraisal. Also, appraisal waivers don’t only remove the need for an appraisal, they omit the time, cost and hassle of an appraisal. Finally, no appraisal means no appraiser required repairs. All of the above clear up the pathway to closing. Seller enjoy clear pathways.
However, not every buyer is eligible for an appraisal waiver. In fact, only certain Conventional Home Loan scenarios allow appraisal waivers. Even then, not every Conventional buyer can waive the appraisal. Unlike waiving the appraisal contingency (a choice buyers can make on any purchase), an appraisal waiver is only an option when the lender offers it as one.
Lenders determine if an appraisal waiver is an option after a buyer is under contract. Then, a full file (including a property address) is run through automated underwriting. Automated underwriting analyzes a buyer’s credit, down payment, reserves, debt to income ratio and last but not least – the subject property – in order to issue an appraisal waiver.
Contingency and Waivers
While waiving an appraisal contingency and an appraisal waiver anchor to the same thing – the appraisal – both have unique uses during a purchase.
- Appraisal Contingency Waivers remove the protection low appraised values give buyers in a purchase. However, this has nothing to do with whether or not a buyer’s lender requires an appraisal.
- Appraisal Waivers (when they are an option) give buyers the option to forgo the appraisal process. Lenders must determine whether a buyer is eligible for an appraisal waiver.
Both options give buyers tools to increase their offers appeal in the eyes of a seller. Typically it’s a one or the other situation (if either is used at all). However, situations exist for both an appraisal contingency waiver AND an appraisal wavier to be used on the same home purchase.
By Jeremy House