February 14th, 2022 at 3:16 pm
What is the Purpose of an “Appraisal-For-Less” Contingency? It can sometimes be used to help put a deal together in a hot housing market. With a traditional appraisal contingency, the buyer can cancel and keep the deposit if the appraisal does not come in at the sales price. With an “appraisal-for-less” contingency, the buyer can cancel and keep the deposit if the appraisal does not come in at a specified target value that is usually less than the sales price.
Here’s An Example: Consider a situation where the listing price is $1 million, but a buyer offers $1.3 million, given the fierce competition among buyers these days. The seller will generally be unwilling to agree to a regular appraisal contingency, given that the appraisal is unlikely to come in at the $1.3 million sales price. However, instead of waiving the appraisal contingency in its entirety, a buyer may want to try to negotiate an “appraisal-for less” contingency that allows the buyer to cancel if the property does not appraise for a certain value less than the sales price. If, for example, the buyer has an extra $300,000 in cash as additional down payment, the buyer may want to try asking for an “appraisal-for-less” contingency for $1 million, rather than the $1.3 million sales price. The buyer’s side can point out to the seller that it’s not a very big ask, given that the seller should have sales comps supporting the $1 million listing price anyway.
Refrain From Drafting An “Appraisal-For-Less” Contingency: Agents and their clients are well-advised to stick with the language provided in paragraph 3L(2) of the RPA for an “appraisal-for-less” contingency. Before that boilerplate language was made available, some agents and their clients ran into problems when they drafted their own language that turned out to be unclear or otherwise unworkable.
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