Our Summer Market is in full swing! Below is a snapshot of May’s Stats. No surprise, we still sit with extremely low inventory. This shortage is continuing to drive pricing up and days on market down.
One tactic that many Buyers are using to compete in the bidding wars is to use a Full Appraisal Contingency Waiver. What does this really mean?
A full Appraisal Contingency Waiver means you are agreeing to proceed with the purchase even if the appraisal comes in lower than contract price. AND (this is the part most people seem to forget) it also means you agree to come in with the difference in cash.Remember, a lender will not lend on more than the appraised value. If you are putting a lower amount as a down payment (5% or 10%, etc) you will end up needing extra cash to cover the difference. For example, if you have a contract price of $550,000 (with a full appraisal waiver) and the appraisal comes in at $540,000, you will need to pay the extra $10,000 in cash.
This is definitely a great tactic to use when competing with multiple offers. However, you really need to dive into the numbers with your lender to make sure you can accommodate the extra cash and still have the proper amount in reserves to get approved for the loan.
Sellers – just because you see a Full Appraisal Waiver with an offer, doesn’t necessarily mean you are golden. Make sure your Agent is confirming with potential buyers’ lenders that the Buyer can accommodate the extra funds and still get approved. If not, you will want to look at other offers more seriously instead.
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