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Behind The Curve: The Appraisal Waiver

In many markets, a financing contingency is simply not accepted by sellers due to the limited supply of inventory [Arizona Republic]. [1]

In other markets, there is a modification of a contingency called an “appraisal contingency waiver,” “To get a house, buyers now often have to waive the appraisal contingency on their home contract. That means the buyer agrees to the sales price even if the appraisal comes up short. They no longer have the low appraisal as a way to back out of the contract without losing earnest money.”

It seems to me that a buyer could convince the lender to decline their loan for weak credit so they don’t lose their deposit or earnest money.

This reporter in this article also says something that bothered me: Appraisers take months to catch up to the market, waiting for closed sales from three to six months prior.

If that is the status quo, then those appraisers are not estimating market value, but instead, are just form filling. [2] How can an appraiser not consider current contracts to adjust the dated closed sales to market value? Relying soley on closed sales is simply an incomplete analysis. For this type of contingency to be common place, then this appraisal practice must be widespread in this market.

On the flip side, appraisers are under tremendous pressure to “make the number” [3] from buyers, sellers, brokers, mortgage brokers and lenders. So I am surprised that so many appraisers have no problem killing a sale with all the pressures they face. I suppose thats a good sign.