What is a Home Appraisal Contingency?

Published On: December 17, 2021|Categories: Blog, Buyers, Home Buyers, Home Sellers, Real Estate, Sellers|Tags: Home Appraisal Contingency, What is a Home Appraisal Contingency|

Whether you’re buying or selling a home in Indiana, you probably know a little bit about home appraisals. But what’s a home appraisal contingency? This guide explains.

What is a Home Appraisal Contingency?

Contingencies are conditions that a real estate agent builds into a real estate purchase contract to protect their clients. These contingencies must be met or the deal won’t go through.

In many contracts, real estate agents include a contingency about home appraisals. home appraisal contingencies say that if the home appraises too low, the buyer has the right to walk away from the deal.

What Happens When an Appraisal Comes Back Low?

When a home appraisal comes back low, it means that the appraiser doesn’t believe it’s worth the amount of money that the buyer is asking to borrow. Lenders don’t like to give more money then they have to for a home because statistically, borrowers are more likely to walk away and default on their payments when the home is worth less than they paid for it. That costs the lender a significant amount of money, and they’re stuck with a house they need to turn around and sell. as a result, the lender will most likely tell the buyer that they can borrow the home’s appraised value and not a penny more.

If an appraisal comes back low, buyers have a few options. They can ask the seller to come down on the price, come up with the remainder of the money that they can’t finance on their own, or walk away from the deal.

What Happens to a Buyer’s Earnest Money if a Home Appraises Too Low?

If a real estate purchase contract includes a home appraisal contingency, the buyer typically gets to walk away from the deal with their earnest money intact. The seller doesn’t get to keep the earnest money in that case.

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