About removing appraisal contingency

5 Replies

Dear BPers

I have a question about removing appraisal contingency in bidding a property and would like to hear your suggestions on it:

Recently I bid a hot property (according to Redfin). Although my offer does not have the highest price, the seller and the listing agent (and I do not have buyer agent) like 25% down in the offer and my good track record in closing deals in the past. In the middle of the bidding, the listing agent asked me whether I would like to remove appraisal contingency. Since I have enough cash and the deal is quite good to me, I mentioned that I would take up to $9,000 out of my pocket if the appraisal is less than what the asking price is. I finally got the property under contract, along with another 9 offers on the second day the property is put on the market. 

After talking with another experienced investor, he mentioned that his past experience showed that if you remove appraisal contingency, the appraisal will always comes somewhat shorter than the asking price, although the appraisers never admit that they communicated with the lender. This seems reasonable, although I could be wrong, that by doing so, the lender is always in a safer position if the buyer put more chips in the game. 

Now, I wonder what the BP community thinks about this situation. If I do not want to pay extra $9000 cash in the deal, what will be the best way for me to proceed? The contract just binds yesterday. 

A big THANK YOU for BP to be super helpful on my questions in the past!


@Leon Lee You're relying too much on what the seller's agent is telling you (hot property, information on the other bids).  That agent has a fiduciary obligation to the SELLER, which puts them in direct opposition to your interests.

While no licensed agent should ever misrepresent anything, you should be taking everything he tells you with a large dose of salt.  (Did you actually SEE the competing offers?  How do you really KNOW that it's a hot property?)

This is one of the reasons you should use an experienced buyer's agent.  Their commission is already negotiated into the selling price, so there's not usually any savings by going it alone.

As to the appraisal, I don't know why you would pay more than the appraised amount.  Maybe there's something else going on, but in my experience, appraisals are normally pretty good.  They're formulaic and have a good amount of data to back them up.

If you pay the appraised amount, you're simply buying at market value.

I reserve the right to be wrong, but I'd be very surprised if the lack of a contingency actually caused the appraised value to change.

@Charlie MacPherson

Thank you for your information! 

Yes, I totally agree that the listing agent does not represent me but the seller and I agree that I should take the agent's words as a large dose of salt. The hot property was marked on Redfin.com: you occasionally will see a red "hot" word on a property, telling you that based on the redfin statistics, the property is a "hot property" and will be sold in XX days. Again, I took that as a grain of salt too. 

The main reason that I believe that the seller's agent asked for the waiver is that (but I could be wrong) the seller over-renovated the property, in a neighborhood with recent sells average around $130k, the seller changed the roof, everything in the kitchen, all new stainless appliances, new HVAC, and added a new full bath and bedroom in the basement. Buying a property like this will significantly cut my repairs and maintenance from the long run, which makes me think that paying a couple of thousands over the market value is not a horrible  choice. Hopefully I am not wrong again. :-) 

Thank you for the information on the appraised value, which makes me feel better. 


@Leon Lee   Normally the reason a seller's agent will ask you to waive the appraisal contingency is that he thinks you overpaid and your sale will fail based on the appraised value coming in less than the sale amount.

I'm going to go out on a limb and guess that the other offers were FHA (3.5% down) or VA / USDA ($0 down) and those higher offers will very likely not survive appraisal for that reason.

With your 25% down payment the lender shouldn't object, since their exposure will be within their limits.  

He's probably trying to lock the deal in, because he knows that the appraisal contingency would still let you back out if the value came in low.

After all, if the other offers (assuming they exist) are really higher, why wouldn't the seller take one of them?

I'll cll BSon the "without an appraisal contingency the lender would like to see a lower appraisal...".  Hogwash, the "lender" is the loan officer who makes a commission if the loan closes, none if it doesn't....he personally doesn't care about the buyer have more cash in the deal to create a Lower loan amount.

Having said that, no I would Not remove your $9k over appraisal contingency....it puts you at risk and I suspect the listing agent knows it will never appraise, so they can't sell it to the majority of financed buyers.

Some updates: The appraisal came out today and it is appraised for $155K, 2K higher than what I paid for. This basically confirmed what you suspected. 

Thank you!