One would think that in this market of steadily increasing prices, a seller would not have to worry about getting their home to appraise after it went under contract. Think again.
I just represented a buyer who negotiated the seller down from the list price - and got a 3% closing cost credit. The contract contained the usual contingencies for a home inspection, document (HOA, Condo or Coop) review, financing and appraisal.
In the DC metro area, an appraisal contingency allows the following: if a property does not appraise, the buyer can ask the seller to reduce the contract to the appraisal price (or some other price between the sale price and the appraisal) or void the contract. In this particular contract, the listing agent and the seller did not place any limitations on the appraisal contingency. For instance, they did not stipulate that the buyer would be responsible for the closing costs if the property did not appraise at the contract price but did appraise at a price higher than the sale price minus the closing costs.
Of course, the property did not appraise (as luck would have it for the seller.) In fact, it came in 2% less than sale price. The seller offered to reduce the price by 1% and leave the closing costs in place. The buyer was not willing to come off the appraisal price but was willing to ask the appraiser to reconsider the appraisal by including a comp in the neighborhood which was the same size but had some upgrades that this property did not have.
The appraiser warned the listing agent that reconsidering the appraisal might result in a lower price rather than a higher price. The agent pressed forward ..... and the appraisal indeed come in nearly another half percent lower than before.
In this rapidly shifting market, not even appraisals are going to be a slam dunk. As a seller giving closing cost help, it is important to protect against appraisals that come in higher than the net sale price (contract price minus closing cost assistance) but lower than the contract price. It is a strange market and if you are representing the sellers, you need to protect them. If you are representing the buyer, you need to make sure they understand that even though an appraisal is an inexact science, the bank is expecting the appraisal value to match the sale price - not the net proceeds to the seller.