Concerns Regarding Sales Without An Appraisal Contingency

In this extremely competitive buyers’ market, buyers are writing offers without appraisal contingencies.  Appraisals have been somewhat unpredictable over the last several years.  Therefore, to make offers more appealing to sellers, buyers are waiving their appraisal contingencies.  There are a number of pitfalls associated with offers without an appraisal contingency.

If a buyer writes an offer without an appraisal contingency and the loan is denied solely because the property did not appraise, the buyer may likely lose the right to cancel the contract due to the inability of having a loan.  In other words, a buyer will no longer have the ability to cancel the contract as a result of the house appraising for less than the purchase price.

Most buyers believe that if the house does not appraise, they can cancel based on their inspections.  However, the California Association of Realtors’ Residential Purchase Agreement provides that the buyers will act in good faith toward the seller in handling inspections.  Therefore, if there is no particular objection or issue with the property raised by the inspections, the buyers may not be able to cancel the agreement based on their inspections if they cannot identify a legitimate issue of concern with the inspections.

Agents are cautioned to advise clients to discuss these issues with clients before writing offers without an appraisal contingency.

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