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What is an appraisal contingency?

An appraisal is an estimate of a property's value by a professional appraiser. Appraisals are typically required by the lender in order to ensure that the loan amount does not exceed the value of the property. This is important for the lender because it guarantees the collateral for the loan.

When a buyer submits an offer to purchase a property, the offer will typically include an appraisal contingency. This means that if the appraisal comes back lower than the purchase price, the buyer has the option to cancel the contract or to renegotiate the purchase price with the seller.

It's common for the seller to make a counteroffer or negotiate with the buyer in the case of low appraisal. But if the buyer and seller can not agree, the buyer can cancel the contract and get the earnest money deposit back.

It's important to note that in some cases, the lender will require an appraisal to be done even if the buyer is paying cash for the property, as a measure to make sure the property is worth the amount the buyer is paying.

Keep in mind that an appraisal contingency is not the same as a home inspection contingency which is to make sure the property is in a good condition. They have different purpose and usually handle by different parties.

Who orders an appraisal?

Typically, a home appraisal is ordered by the lender in a real estate transaction, but in some cases, it can also be ordered by the buyer or the seller.

When a buyer is obtaining a mortgage loan to purchase a property, the lender will require an appraisal of the property as part of the loan process. The lender wants to ensure that the value of the property is at least as much as the amount of the loan so that the property can serve as collateral. The lender will hire a professional appraiser to conduct the appraisal and submit a report to the lender.

In some cases, a buyer may choose to order an appraisal on their own, before making an offer on a property. This can help the buyer to determine the fair market value of the property and make sure that they are not overpaying for the property.

Similarly, a seller may choose to order an appraisal on their own, in order to have a better idea of the fair market value of the property before listing it for sale. This can help the seller to set a realistic asking price for the property.

Keep in mind that although a home appraiser is selected by the lender, but the cost is usually passed on to the borrower. You should check with your lender if they cover the cost or the buyer should cover it.

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