Appraisal Contingencies & Purpose Of Bank Appraisal

[Deleted member 128537]

I have been thinking about this appraisal contingency in offers to purchase in Wisconsin. I'm just throwing this out to see the reaction. But the other day I did an appraisal on a house with the OP of 136,000 and they were only financing 40,000. Yet they had an appraisal contingency in it. Which means that the buyer is using my appraisal to make a purchasing decision.

Yet the purpose of an appraisal for a lender is to make a mortgage lending decision. Its purpose is not to help the buyer to negotiate with the seller or help make a purchase decision. I feel like when that happens my appraisal is being used by someone who is not the client, who has no right to use it for a different purpose, and it makes me feel a bit like I'm a cog in the negotiating strategy between the buyer and seller.

For that reason I am considering no longer doing appraisals for any offers where there is an appraisal contingency. If the buyer wants to use an appraisal to help make a purchasing decision they should order an appraisal for that purpose.

What do you think?

I'm not really sure what to think.

 

[J Grant]

I have been thinking about this appraisal contingency in offers to purchase in Wisconsin. I'm just throwing this out to see the reaction. But the other day I did an appraisal on a house with the OP of 136,000 and they were only financing 40,000. Yet they had an appraisal contingency in it. Which means that the buyer is using my appraisal to make a purchasing decision.

Yet the purpose of an appraisal for a lender is to make a mortgage lending decision. Its purpose is not to help the buyer to negotiate with the seller or help make a purchase decision. I feel like when that happens my appraisal is being used by someone who is not the client, who has no right to use it for a different purpose, and it makes me feel a bit like I'm a cog in the negotiating strategy between the buyer and seller.

For that reason I am considering no longer doing appraisals for any offers where there is an appraisal contingency. If the buyer wants to use an appraisal to help make a purchasing decision they should order an appraisal for that purpose.

What do you think?

I think that is crazy and one of the reasons some lenders want to do away with appraisals.is this kind of craziness. So you get an assignment, read a contract and if it contains a contingency clause give it back? If I were your client I 'd never use you again.

Just do your job and opine MV , what clauses contracts have is out of our hands, and it is legal for them to contain an appraisal contingency clause, just as they can have a home inspection/repair $ items contingency clause.

Are home inspectors running around whining because their findings might be used to re negotiate a price? I've never heard one concern themselves with it

 

[Overimprovement]

Most of my purchase contracts have this--I think its just a normal thing. The NAR likely advocates to have it in standard contracts, just like all the other contingencies. It's not usually the buyer that is requesting that language be placed in the offer to purchase. But it does end up being an easy out in case buyer changes their mind. The home inspection is the easiest out because even home inspections on new homes find something 'wrong'. MOST purchases need the full financing, and if a home comes in 5% low, they can't make that up, and if the seller refuses to lower the sales price, but the bank is still willing to loan on appraised value, the buyer would be stuck if they couldn't make up the difference. But most finance contingencies lock onto the purchase and financed amounts, so an appraisal contingency is usually overkill as well.

 

[Renee Healion]

Most of my purchase contracts have this--I think its just a normal thing. The NAR likely advocates to have it in standard contracts, just like all the other contingencies. It's not usually the buyer that is requesting that language be placed in the offer to purchase. But it does end up being an easy out in case buyer changes their mind. The home inspection is the easiest out because even home inspections on new homes find something 'wrong'. MOST purchases need the full financing, and if a home comes in 5% low, they can't make that up, and if the seller refuses to lower the sales price, but the bank is still willing to loan on appraised value, the buyer would be stuck if they couldn't make up the difference. But most finance contingencies lock onto the purchase and financed amounts, so an appraisal contingency is usually overkill as well.

I like this (twice).
There are a (very) few that come across with the contingency that appraisal must come in at contract price. What a difference 1 cent could make! While I address each contingency concisely, I spend more time on one like that and usually reference the certs.Does anyone see that specificity in their area?

 

[hastalavista]

I agree with JGrant in regard to how a client might react. One time? I doubt if the client would care that much. As a rule or a pattern? Yes; if I were the client, I'd move on to another appraiser because of what I would consider an unnecessary delay (appraiser accepts order.. takes the time to review the contract... and then gets back to me a day or two later and says, "thanks but no thanks"). To be clear, the appraiser certainly has the right to make that decision. As I client, I have the right to make my engagement decision based on their pattern of decline.

As to the bigger picture, I see the appraisal-contingency as an option that a buyer may want to take to give them as much opportunity to either cancel the deal or renegotiate it. Just as a due diligence period allows them to discover conditions which might impact their decision, the appraisal-contingency gives them an option to renegotiate if they want to.
However, as the seller's agent, I'd advise my client to counter with some condition of their own. For example, if they are coming in with a big down-payment, I might want a larger non-refundable deposit. Or, I might counter that if the appraisal is 10% lower than the contract price then the contingency can be exercised.

Your question was one more about "what do you think about this business decision" vs. "how a contingency can work in real life." As a business decision, it is up to you. But that decision has consequences, and I would just say if that is the choice you make, be prepared for some clients to make a choice as well.

Sidebar: I don't accept orders for new development retail-builder sales. I find them to be a PIA especially since, per Fannie (unless they've changed the rules) expect that for any sales used from within the development, for the appraiser to review the HUD-1 statement. Few appraisers do it, and when I started to ask for the document, I typically received nothing but grief. So, I stopped taking those assignments. Hasn't stopped my clients (back when I did more retail residential appraisal work) or the few mortgage lenders I continue to do residential mortgage work for to stop using me. Your business-decision is very similar. The only significant difference is that I wouldn't accept the order to begin with where you may have to accept it first to in order to review the contract.

Good luck!

 

[miktay]

If the buyer wants to use an appraisal to help make a purchasing decision they should order an appraisal for that purpose.

In the real world, you know as well as anyone that no buyer is going to pay for the lenders appraisal, and then willingly pay for a separate appraisal for their own use.
They already complain about the cost for just one.

 

[Carnivore]

You know I did not realize how that Due Diligence effected us appraisers. I just read the clause in a contract and it has a side note to make sure the buyer allows enough time for appraisal results as part of the due diligence. Whoa! So in the contract obtaining loan approval is not a condition of the purchase contract, but an appraial is part of the due diligence.

I read some other interesting parts of the small print that raises some serious concerns.

So in a contract I have; the due diligence money is $1,000. Does this mean a buyer may have to forfeit that money if they don't get an extension from the seller.

Lets say i cant deliver the appraisal as agreed to date because of unseen assignment results. Does the buyer have recourse against me? I don't see how because I am not a party to the purchase contract. ???

Is the Realtor Contract universal? or is it state specific. Just wondering because your state might read differently than mine.

 

[Lee Lansford]

I have been thinking about this appraisal contingency in offers to purchase in Wisconsin. I'm just throwing this out to see the reaction. But the other day I did an appraisal on a house with the OP of 136,000 and they were only financing 40,000. Yet they had an appraisal contingency in it. Which means that the buyer is using my appraisal to make a purchasing decision.

Yet the purpose of an appraisal for a lender is to make a mortgage lending decision. Its purpose is not to help the buyer to negotiate with the seller or help make a purchase decision. I feel like when that happens my appraisal is being used by someone who is not the client, who has no right to use it for a different purpose, and it makes me feel a bit like I'm a cog in the negotiating strategy between the buyer and seller.

For that reason I am considering no longer doing appraisals for any offers where there is an appraisal contingency. If the buyer wants to use an appraisal to help make a purchasing decision they should order an appraisal for that purpose.

What do you think?

I'm not really sure what to think.

News flash! Anyone and everybody who comes into possession of your appraisal report may--by their decision--use it for whatever reason that they want. That's the way it is. BTW, if you place that requirement on the lender, it will be much easier for the lender not to use your services--period.

 

[J Grant]

It's due diligence of the BUYER, to obtain financing approval, an appraisal, a home inspection/other (whatever is in contract ) in a timely manner ( within 20 or 30 days or whatever they fill in). A sales contract and rate loan locks put time pressure on appraisers but that is the nature of purchases of mortgage work. Most contracts are pre printed forms you can get them in a stationary store or preprinted REALTOR contracts with space to write in or cross out clauses and contingencies. Yes buyers can forfeit $ if they fail to perform (get things done within time limits of contract ) or they get their money back and deal is off depends on terms and agreements

Who cares though, as an appraiser just do your job and opine market value for the subject property.

 

[Bob Ipock]

Exactly who is the client for this appraisal?