When it comes to real estate transactions, there are numerous legal terms and clauses that need to be understood by both buyers and sellers. One such clause that is often included in agreements of sale is the appraisal contingency. In this article, we`ll take a closer look at what an agreement of sale appraisal contingency is, how it works, and why it`s important.
First, let`s define what an agreement of sale is. It`s a legally binding contract between a buyer and seller that outlines the terms and conditions of the sale of a property. An appraisal contingency is a clause that can be included in the agreement of sale, which allows the buyer to back out of the deal if the property`s appraised value is lower than the agreed-upon purchase price.
Why is an appraisal contingency important? It`s a form of protection for the buyer, ensuring that they are not overpaying for a property. An appraisal is an objective evaluation of a property`s value by a licensed appraiser. A property appraisal takes into consideration factors such as location, property size, condition, and other relevant characteristics. If the appraised value is lower than the purchase price, the buyer has the option to renegotiate or walk away from the deal without losing their earnest money deposit.
It`s important to note that if the buyer wants to use an appraisal contingency, they must make sure that it`s included in the agreement of sale. The contingency should be specific and clearly state the conditions under which the buyer can back out of the deal. For example, the contingency may state that if the appraised value is less than the purchase price, the buyer has the option to renegotiate the price, ask the seller to make necessary repairs, or walk away from the deal.
If the buyer decides to proceed with the transaction despite the lower appraised value, they may need to put more money down to meet the lender`s loan-to-value ratio requirements. Lenders typically provide loans based on the appraised value of the property, not the purchase price.
In conclusion, an agreement of sale appraisal contingency is an important clause that can protect the buyer from overpaying for a property. If you`re a buyer, make sure to include this contingency in your agreement of sale and understand the terms and conditions under which you can back out of the deal. If you`re a seller, be aware that an appraisal contingency may be included in the agreement of sale and be prepared to renegotiate the purchase price if necessary. As always, it`s important to consult with a real estate attorney to ensure that your contract is legally binding and protects your interests.