When is It a Good Idea To Remove The Appraisal Contingency?

By
Real Estate Agent with DWELL REAL ESTATE BK3105105

If you are purchasing a home with a mortgage, you will have to have an appraisal for the bank to determine if it will give you a loan provided you have jumped through all the other hoops. However, if you are a cash buyer, the answer to this question most of the time is "It depends."

If you want to make certain that you are paying a fair price for the home based on recent comps and an appraiser's professional opinion, then obviously you will want to get an appraisal.  But what do you do when you find the absolute dream home, it has gone to multiple offer status and you are more than happy to pay the price you are offering?  That is the time to step up to the plate and remove the appraisal contingency. 

Many sellers, when offered cash, will automatically move the offer to the front of the line but when they see the appraisal contingency they relegate it back to the same yard-line as the offer with a mortgage contingency. If your offer is in the ballpark and you are cash with no appraisal contingency, the seller is often more interested in your deal because once the home passes inspection they know they are on the road to closing. The last two buyers I have worked with have been successful with the cash, no appraisal strategy and were not looking for a bargain or to "steal" the property.  They found homes they loved, realized that there was not alot of inventory that appealed to them and they were willing to pay market value instead of haggling.  Not every buyer has the luxury of paying cash or not worrying about an appraisal but when the right house comes along, it makes sense to achieve your dream and not settle for second best.   

 

 

 

 

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Marnie Matarese |Broker Associate | GRI|RSPS|SRES | DWELL Real Estate 

MARNIE@CALLMARNIE.COM 

DIRECT:  941-809-8099 

 

www.callmarnie.com  

1947 Ringling Boulevard

Sarasota, Florida 34236

 

  

          

 

 

 

 

 

 

 

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Rainmaker
528,731
Karen Feltman
Cedar Rapids/Iowa City, IA KW Legacy Group - Cedar Rapids, IA
Relocation Specialist in Cedar Rapids, Iowa

It can be a slippery slope I am afraid.  Recommending that they not write an appraisal contingency is really playing fast and loose with someone else's cash.  Yes, it may win in a multiple offer situation, but in these situations there is the possibility of buyer's remorse.  If you take away the option of fair value from their offer, there could be a liability to you as the agent for making such a recommendation.  It is one thing if it is their idea, quite another for you to suggest it as a strategy to beat out offers with mortgages.  Just my two cents.  I don't know that I would ever recommend that option.

Jan 25, 2014 12:09 PM #2
Rainmaker
889,349
Sussie Sutton
UTR Texas Realtors - Pearland, TX
UTR TEXAS Realtors - Rep for buyers and sellers.

I have not a comment as of yet on this discussion. I have to think on it some more. I see the validity of both post and comment by Karen.

Jan 25, 2014 12:53 PM #3
Rainmaker
375,566
Lloyd Binen
Certified Realty Services - Saratoga, CA
Silicon Valley Realtor since 1976; 408-373-4411

Marnie-it's always a tough call, but it's ultimately up to the buyer after s/he understands for all the advantages/disadvantages and the risks/rewards. 

Jan 25, 2014 02:31 PM #4
Rainmaker
1,428,034
Kat Palmiotti
Grand Lux Realty, Monroe NY, 914-419-0270, kat@thehousekat.com - Monroe, NY
The House Kat

The buyer's agent should provide a good CMA, which isn't the same as an appraisal, but basically does the same thing - determine market price.  It's ultimately up to the buyer whether to skip the appraisal, but if they are confident in their agent, and they know the amount they have offered is a fair market price, then removing the contigency shouldn't hurt them at all.

Jan 25, 2014 08:55 PM #5
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Unless there is a date for removal of the appraisal contingency, probably at closing!!!

 

Jan 25, 2014 09:26 PM #6
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Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

In my part of the world cash offers are not the norm and when you get down to it, a conventional loan is a cash offer, it is just cash coming from the lender. With that in mind could cash become a tie breaker? Of course, but if it is below an offer from a respected local lender then the appraisal is usually not an issue. I speak just for Oklahoma City but your area may be different.

Jan 25, 2014 10:01 PM #7
Rainmaker
397,943
Marnie Matarese
DWELL REAL ESTATE - Sarasota, FL
Showing you the best of Sarasota!

Hi Karen - There has been a ploy by buyers in my area to offer full-price or above on homes that are in a multiple offer situation and then renegotiate at a much lower offer if the appraisal falls short.  Many times the sellers had better offers at the time of acceptance than the offer that followed the appraisal and they would have been better off to have accepted them than go through the process with what appeared to be a better offer that was then reduced.  On the other side, many cash buyers have lost out on homes that they were willing to pay probably more than appraised value because the seller doubted their sincerity of their offer with the appraisal contingency tied to it.  This post was aimed at buyers who absolutely do not want to lose the home of their dreams and are willing to pay what it takes to get it.   I do not advise my buyers to do this but when they ask the question, this is the answer that I give them along with all of the caveats about buyer's remorse etc.  Not all markets have this situation going on but we certainly have it here and when a buyer has lost out on two or three multiple offer situations, they really want to know how to win the next one.

Jan 25, 2014 10:39 PM #8
Rainmaker
397,943
Marnie Matarese
DWELL REAL ESTATE - Sarasota, FL
Showing you the best of Sarasota!

Lloyd, it is absolutely up to the buyer and I do not suggest this method but provide the information necessary as to the risks involved once the inspection contingency has been removed.  Our market is very competitive and combative at the moment on homes that are fairly priced.

 

Jan 25, 2014 10:42 PM #10
Rainmaker
397,943
Marnie Matarese
DWELL REAL ESTATE - Sarasota, FL
Showing you the best of Sarasota!

Kat,

Although I provide a CMA, I do advise the buyer that what the CMA says today can be turned on its head tomorrow with the posting of a couple of short sales or bank-owned properties.  It is very hard from day to day here to follow the logic or machinations of the appraisers who are working on shifting ground.

Jan 25, 2014 10:44 PM #11
Rainmaker
397,943
Marnie Matarese
DWELL REAL ESTATE - Sarasota, FL
Showing you the best of Sarasota!

Joe, we are in a huge cash buyer's market here and seven of my last ten sales have been cash ranging from a small condo of $78,000 to a tear-down house on the Gulf for 3.6 Million.  Sarasota was one of the first cities in Florida to go into the tank from the housing bubble and now we quickly but safely rising from the ashes.  Buyer's are anxious to purchase before the prices continue upward.  We closed on a single family home last week that is new construction.  When the buyer went to contract the home was 440K.  The exact same home, 8 months later is 510K.

Jan 25, 2014 10:48 PM #13
Rainmaker
4,432,093
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Good advice for cash buyers . Thanks for the post.

Jan 25, 2014 10:57 PM #14
Rainer
103,107
Rosie Moore
Serving Sugar Land, Richmond, Rosenberg, Missouri City - Sugar Land, TX

If the buyers' offer is pretty close to the market value based on a CMA, waiving an appraisal contingency may be a good strategy to make the offer more attractive to the sellers. However, if the home is slightly overpriced for the neighborhood and the buyers are offering full price because they love the home and they're in a multiple offer situation, I would suggest they keep the appraisal contingency.  If the appraisal comes in low, both parties can renegotiate the price.  By the way, I love your football analogy! Excellent topic to post about.

Jan 25, 2014 10:57 PM #15
Rainmaker
2,446,686
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Definetly a game changer dynamic here

Jan 25, 2014 11:27 PM #16
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Marnie, this not only good advise for cash buyers but for those getting a mortgage it might help to note that they are buying without appraisal consideration when they put down a big down payment.

Jan 26, 2014 12:59 AM #17
Rainer
324,357
Scott Larson
BHHS/Utah Properties - Park City, UT
Park City, Utah Real Estate News

Very well presented Marnie.  I don't ever recommend my buyer go without an appraisal but I do explain the offer we are presenting in detail and how if they are a cash buyer and they are satisfied with the value they are getting based on comps we have looked at, that their offer will be stronger without an appraisal contingency.

Jan 26, 2014 04:29 AM #18
Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

If cash buyers are willing to forego the appraisal then their offer will be considered golden to the sellers. Home buyers getting a loan can safely remove the appraisal contingency if the appraisal report shows value at or above the contract price, and there are no property conditions to remedied. 

Jan 26, 2014 06:06 AM #19
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Richard Iarossi
Coldwell Banker Residential Brokerage - Crofton, MD
Crofton MD Real Estate, Annapolis MD Real Estate

As a listing agent, I would consider a cash offer within appraisal contingency to be no different than an offer that required a loan. Good advice to remove the appraisal contingency when your offer is cash, in you're comfortable that the price is appropriate.

Jan 26, 2014 06:08 AM #20
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Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES
Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL
Florida Waterfront and Country Club Living

Marnie, you are right, cash offers with appraisal contingency are not much different than financed offers.  I don't think I've ever had a cash buyer wanting to do an appraisal.  

Jan 26, 2014 10:07 AM #21
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

If the home is priced fairly then a cash offer with no appraisal makes good sense.  We recently had a cash offer on a higher priced condo withan appraisal contingency.  At the last minute per the agreed upon date in the contract they did they appraisal.  It was fine but we think they were getting second thoughts and hoped to kill the deal with a low appraisal.  It didn't.

 

Jan 26, 2014 07:47 PM #22
Rainmaker
1,059,662
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

Removing the appraisal contingency is a good strategy for cash buyers in our fast paced Dallas market.

Jan 27, 2014 11:32 AM #23
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