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Is It Wise for Buyers to Waive the Appraisal Contingency?

By Hank Miller | April 18, 2013

Is it wise to waive the appraisal contingency as a buyer? The appraisal topic continues to cause agitation among many in the home buying process, but is the answer to eliminate it? Current markets operating in the present environment: appraisals operate with historic data; a conflict right out of the gate. Add a shortage of comps, reduced inventory and a major influence of institutional investors and you could see appraisal issues coming - in fact we called this as a likely problem early last fall.

Some argue that inexperienced or out of town appraisers are to blame for low appraisals.

In this rather tight Atlanta real estate market, some "regular" buyers are electing to waive the appraisal contingency. This is done primarily to present a more streamlined, competitive offer - one that will better compete with cash offers or set them apart in multiple offer situations. But is it wise? In most cases, no. In fact, in almost every case it's dumb...and not just for obvious reasons. Investors are a different story and a different breed of buyer; they will do it frequently and they understand it is part of their business.

There are situations where waiving the appraisal contingency may be beneficial, but the average buyer isn't likely to be in one. Cash is king with investors, especially in the current Atlanta real estate market which is front and center on the radar of institutional investors. To offer list or even above list often isn't enough now, this is a situation where the appraisal contingency is routinely omitted just to be competitive. In fact, it might be accurate to say that investor offers WITH the contingency are rare and few will successful.

"Regular" home buyers are occasionally removing the appraisal contingency to gain an edge in this competitive market. This is typically seen after a call for "highest and best" final offers; something that can happen on first time and first move up priced homes. An agent may recommend raising the price and pulling the contingency to show the seller full commitment. This can backfire however because many in this group will use FHA for mortgages; an appraisal is integral to the process and these buyers often lack the funds to cover a short fall. A smart agent should also know that a low FHA appraisal can actually be used to the buyer's advantage.

Some buyers of mid to upper priced homes are also removing the appraisal contingency to be more appealing, again this is most common in a competing offer situation. Often these are buyers that have the ability to cover a short fall, have low LTV loans or are cash buyers. In markets with a limited inventory of quality homes, buyers are looking for any possible edge.

"Regular" buyers removing the appraisal contingency must carefully consider the pros and cons. An appraisal below contract price can be effectively used to negotiate a reduction in sale price. Areas like Atlanta have moved to a seller's market, but sellers may find it easier to renegotiate than move the home back to active status knowing the problem may occur again. FHA buyers may omit the contingency but an appraisal will be required as part of the loan; so in a sense this is just semantics. That FHA appraised value will run with the home for six months so a seller likely to have an FHA buyer will have a decision to make. Most FHA buyers will not have large amounts of disposable income; a low appraisal may terminate the deal and the seller may be open to a price adjustment. Cash buyers are the most likely group to omit the appraisal contingency. Even though not required, waiving it may prevent a chance to reduce price should one be completed that comes in below contract.

If a buyer considers waiving the appraisal contingency, it is strongly recommended that an active appraiser be consulted for an opinion during the due diligence period. This will provide a "peace of mind" to a buyer and an expert opinion of value; real estate agents are not appraisers and history shows that most do not understand the appraisal process. The appraisal contingency is a major protection for a home buyer; it is completed by a completely impartial party with no direct interest in the transaction. Removal of this layer of protection should be carefully considered as emotion could very easily cloud a buyer's judgment.


Hank Miller is a full time Associate Broker and Certified Appraiser in Atlanta. He is known as much for his attention to detail as he is for his candor. Visit for all things real estate.
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