Waiving Appraisal Contingency and Loans?

Question

Investing in a really hot market has been insanely frustrating. To get ahead, our agent asked if we would be comfortable waiving the appraisal contingency, but not an inspection contingency.

Knowing the pitfalls of doing so, and today being a Saturday, what will the loan be based on if the appraisal contingency is removed?

We will still do an appraisal, per our agent just so we know our bargaining ground, but would the lender base a loan on the appraisal, even if it is not part of the contract?

Waiting on lender's answer, but may not receive it til Monday! Thanks in advance!

Russell Brazil · Answer

It is unfortunately the reality of the market.

You basically have 2 choices

1) Waive contingencies

2) Skip new to market properties altogether and focus on stagnant properties on market say 21 days or more.

Winston Covington · Answer

In my experience in Southern California, here’s how it works when the Buyer waives the Appraisal contingency. The Appraiser will do their best to bring in the value at the purchase price. However; if they can’t bring it in at the agreed price, the lender will adjust their loan amount.  The Buyer then has to bring in the additional Cash to meet the difference between the reduced loan amount and the agreed upon purchase price.

I recently read that in Southern California, 2/3 rd’s of the homes sold are being sold for well over the full listing price.  However; I would never waive the physical inspection and most local lenders can get an appraisal done within the 17 day contingency period.

Nicholas Covington · Answer

The lender will lend on the purchase price or appraised value, but whichever is lower. So if appraisal comes in low that's what they are lending off of.

Stephen Brown · Answer

Good luck on this deal Ashley! I believe the lender will still go off an appraisal!

Charlie MacPherson · Answer

@Ashley Keeler  Unless there is a LOT of equity (large down payment, well below market price), your lender will require an appraisal.  They need to be sure that in the event of default, they can foreclose and sell the property and come out whole.

If you waive the appraisal contingency and the property doesn't appraise, the lender will refuse the loan.  If you have a financing contingency, that should kick in (depending on how it's written) and get you out of the deal without losing your deposits.

A sharp seller's agent will look for a larger deposit and for it to be non-refundable.

Unless you have a backup plan for financing in the event that the appraised price falls short of the loan value, I'd be very careful about signing one.

With most appraisals running several weeks behind, it's likely that you'll have your inspections done before the appraisal.  That means that the window for bailing out due to inspection has long since passed by the time that the appraisal is done.

Proceed with caution and keep your deposits as small as you can get away with.

Ashley Keeler · Answer

Thank you everyone for your input and advice. We did decide to waive the appraisal contingency (we do have cash reserves to offset the difference). We will see if we can land the deal or not. Appreciate your time!

Allan C. · Answer

@Ashley Keeler I would be fine waiving inspection contingency but I wouldn’t waive loan contingency unless I had extra cash to close.  Risking your EMD because you couldn’t fund the loan would be a painful experience.

Michael Plante · Answer

I would ask the agent

Waiving Appraisal Contingency and Loans?

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