Purchase offers have appraisal contingencies inserted into them to notify the seller that the buyer intends to have the property appraised as part of their purchase for the financing process.
If the property doesn’t appraise for the amount the buyer offered to pay then this contingency allows them the option of backing out of the contract without losing their earnest money deposit or facing other penalties.
During an appraisal, a licensed professional is hired by the homebuyer to examine the property and evaluate it against the recent sales of comparable properties in the same area.
A report of their findings is given by the appraiser to the buyer and their lender.
With a home appraisal, an objective value is assigned to a property that’s being purchased. As most lenders aren’t allowed to lend more against a property than it’s worth so an appraisal is very important.
That way, in case of default the lender has a better chance of getting their money back if they have to foreclose.
If a buyer doesn’t intend to have a property appraised then the appraisal contingencies also can be waived.
Appraisal contingency waiver makes offers stronger for the sellers because it means the buyer doesn’t need the property to appraise for a certain value in order to close.