Appraisal Contingency

Appraisal Contingency

An appraisal contingency in Hawaii, Maui or Oahu is a standard contingency in an offer to purchase real estate for any buyer who needs to obtain a loan to a purchase a home. It gives the buyer the right to cancel escrow without penalty if the bank appraiser determines the price of the home to be worth less than the purchase price.

It is somewhat rare for a bank appraiser to determine that a home is worth less than the purchase price. Usually, the appraisal comes in at exactly the purchase price; appraisers view what a buyer is willing to pay as great evidence as to what a home is worth. Nonetheless, appraisals at less than the purchase price sometimes occur.

Many buyers can still proceed even with a low appraisal

If the appraisal comes in at less less than the purchase price, that does not necessarily mean that the escrow is over. If the buyer has the financial wherewithal, the buyer can pay in cash the difference between the appraised value and the purchase price and still obtain the loan.  Effectively, the cash down payment for the buyer increases to cover the difference between the appraised value and the purchase price.

Generally sellers should not counter appraisal contingencies

Most buyers obtaining a loan view the appraisal contingency as vital and will not proceed without it. Only in rare circumstances does the contingency present a problem for the seller. Therefore, if a seller wants to enter escrow with a buyer who is obtaining a loan, it is usually best to allow for the appraisal contingency (and the related contingency known as a loan contingency).