What is an Appraisal Contingency?

Summary

This video discusses the appraisal contingency in real estate transactions. It explains how a home's appraised value can affect a deal, outlining three possible outcomes: the seller lowers the price, the buyer covers the difference, or both parties negotiate a middle ground. The importance of negotiation skills for real estate agents is emphasized.

Takeaways

• 🏠 The video discusses the challenges real estate agents and buyers may face with appraisal reports that don't meet the expected home value.
• 📝 The concept of an 'appraisal contingency' is introduced, which is a clause in the contract that allows the buyer to back out if the home's appraised value doesn't meet the agreed-upon price.
• 🤔 The importance of the appraiser's role is highlighted, as they represent the bank and the buyer to ensure the home's value aligns with the loan amount.
• 💰 The script outlines three potential outcomes when the appraised value is lower than the agreed-upon price: the seller lowers the price, the buyer pays the difference, or both parties negotiate a middle ground.
• 🔑 The decision often hinges on the buyer's motivation and the state of the real estate market, which can influence whether the seller is willing to negotiate.
• 🤝 The video emphasizes the role of real estate agents in negotiating and finding creative solutions to close the deal despite appraisal challenges.
• 💡 It encourages real estate agents to think analytically and be prepared to handle appraisal discrepancies as part of their professional responsibilities.
• 📉 The script mentions that in a seller's market, sellers may be less willing to negotiate, whereas in a buyer's market, they may be more open to price reductions.
• 🏡 The impact of the appraisal report on the home buying process is significant, as it can determine whether a deal goes through or not.
• 🛑 The video advises against giving up when faced with an appraisal challenge, instead promoting a proactive approach to finding a resolution.
• 🔔 Lastly, the video ends with a call to action for viewers to like, subscribe, and hit the bell icon to stay updated with future content.

Q & A

What is the main topic discussed in the video?

The main topic discussed in the video is the appraisal contingency in real estate transactions, specifically what happens when the appraised value of a home is not what the buyer expected.

What is an appraisal contingency?

An appraisal contingency is a condition in a real estate contract where the buyer agrees to purchase the property only if the property appraises at a certain value, typically the agreed-upon purchase price.

Why is the appraisal contingency important for buyers?

The appraisal contingency is important for buyers as it protects them from overpaying for a property. It ensures that the property is worth the purchase price, thus protecting their investment and the lender's loan amount.

What happens when the appraised value is lower than the agreed-upon purchase price?

When the appraised value is lower than the agreed-upon purchase price, the buyer has options: negotiate with the seller to lower the price to the appraised value, come up with the difference in cash, or negotiate a middle ground where both parties agree on a new price.

What role does the appraiser play in the process?

The appraiser represents the bank and the buyer to confirm that the property is worth the purchase price. They conduct an investigation and research of the property and provide an appraisal report with their professional opinion on the property's value.

How does the market condition affect the negotiation process in appraisal discrepancies?

The market condition significantly affects the negotiation process. In a seller's market with limited inventory, sellers may be less willing to negotiate, whereas in a buyer's market with excess inventory, buyers may have more leverage to request a price reduction.

What are the three options available to buyers when the appraised value is lower than expected?

The three options available to buyers are: 1) The seller lowers the price to the appraised value, 2) The buyer comes up with the difference in cash to meet the purchase price, and 3) Both parties negotiate a middle ground with a new agreed-upon price.

Why is it important for real estate agents to be creative and analytical in handling appraisal challenges?

It is important for real estate agents to be creative and analytical in handling appraisal challenges because they need to find solutions that satisfy both the buyer and the seller, ensuring the deal can proceed smoothly and fairly.

What should a buyer do if they are not satisfied with the appraiser's valuation?

If a buyer is not satisfied with the appraiser's valuation, they can request a re-evaluation, provide additional comparable sales data to support a higher value, or negotiate with the seller based on the discrepancy.

How can a real estate agent help their client navigate an appraisal contingency situation?

A real estate agent can help their client navigate an appraisal contingency situation by providing guidance on the available options, assisting in negotiations, and advising on the potential impact of the appraisal on the transaction.