What is an appraisal and how is it used in a real estate transaction?

In general, a real estate appraisal is an assessment of a property's value by a licensed and certified professional appraiser. The appraiser will evaluate the property's condition, location, and comparable sales in the area to determine an estimated value of the property. The appraisal is typically required by a lender when a buyer is seeking financing to purchase a property.

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The purpose of an appraisal is to ensure that the property is worth the amount of money being borrowed to purchase it. It also helps to protect the lender's investment and prevent the buyer from overpaying for the property.

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An appraisal contingency is a clause in a real estate contract that allows the buyer to cancel the contract or negotiate a new purchase price if the property appraises for less than the agreed-upon purchase price.

 

This contingency protects the buyer from overpaying for a property and ensures that the lender is willing to finance the property at the agreed-upon purchase price. Here's how an appraisal contingency works:
 

1. The buyer and seller agree to a purchase price for the property.
    

2. The buyer's lender orders an appraisal to determine the property's market value.
    

3. If the appraisal comes back lower than the agreed-upon purchase price, the buyer has the option to cancel the contract or renegotiate the purchase price.
    

4. If the buyer decides to renegotiate the purchase price, they must submit a written request to the seller stating the new proposed purchase price. The seller then has the option to accept the new price, negotiate a counteroffer, or reject the offer.
    

5. If the buyer and seller are unable to come to an agreement on the new purchase price, the buyer can cancel the contract and receive a refund of their earnest money deposit.
    

An appraisal contingency is a common clause in real estate contracts, especially in markets where property values are fluctuating. Your Designer Real Estate Group agent and lender will guide you on whether an appraisal is necessary for your home.