Contractual Appraisal Contingency

[BRCJR]

Post on LinkedIn caught my attention.
If the purchase contract has an appraisal contingency and there is no appraisal completed, a waiver is used, does this constitute a breach of contract?
I understand if the contract is amended, but what if it is not?

 

[DWiley]

Post on LinkedIn caught my attention.
If the purchase contract has an appraisal contingency and there is no appraisal completed, a waiver is used, does this constitute a breach of contract?
I understand if the contract is amended, but what if it is not?

I have long been interested in this topic. It has been my experience that in most cases, neither party to the contract actually engages an appraiser for the purpose of satisfying that clause, and the appraisal clauses in many contracts are quite vague. In the end, if neither the buyer or seller challenge, I suppose it is not an issue.

Circa 15 years ago I was involved in a very interesting case. Sale contingent on the home appraising for at least $X. The bank's appraisal (an exterior only appraisal) came in less than $X, and the buyer claimed he could get out of the contract. Seller produces tax appraisal that is more than $X and claims the contract has been met, because the contract only said it had to appraise, it did not stipulate the nature of the appraisal.

 

[Gobears81]

The onus is on the buyer to see that an appraisal is done. I haven't seen cases where the seller has an out, due to an appraised value, so if an appraisal is not performed, there is no breach, at least based on typical contract language.

 

[swandel1]

Yes...it all depends on the specific verbiage of the contract clause. Here in AZ, the state BOR has standardized purchase forms as we use title companies here, not attorneys (in most cases). Here is the verbiage used

 

[chad hampton]

When you up end the way real estate transactions have been done for the last several decades you get a lot of confusion. I would be concerned with buyers just assuming that an appraisal was done because that’s what has always been done. Which is a reasonable expectation. If I was not in this business and relied on trusted professionals and they told me everything was good with the loan I would naturally think that means the appraisal came in.

It’s a problem. Waivers should never be used on purchases. It’s a very risky policy.

If you are experienced in your market, it’s not terribly difficult to predict which sales might have had waivers.

 

[swandel1]

When you up end the way real estate transactions have been done for the last several decades you get a lot of confusion. I would be concerned with buyers just assuming that an appraisal was done because that’s what has always been done. Which is a reasonable expectation. If I was not in this business and relied on trusted professionals and they told me everything was good with the loan I would naturally think that means the appraisal came in.

It’s a problem. Waivers should never be used on purchases. It’s a very risky policy.

If you are experienced in your market, it’s not terribly difficult to predict which sales might have had waivers.

I agree. The only times I really see appraisal waivers are on purchases of properties to tear down the structures (for rebuild as new construction).

 

[BRCJR]

When you up end the way real estate transactions have been done for the last several decades you get a lot of confusion. I would be concerned with buyers just assuming that an appraisal was done because that’s what has always been done. Which is a reasonable expectation. If I was not in this business and relied on trusted professionals and they told me everything was good with the loan I would naturally think that means the appraisal came in.

It’s a problem. Waivers should never be used on purchases. It’s a very risky policy.

If you are experienced in your market, it’s not terribly difficult to predict which sales might have had waivers.

They (buyer using regulated lender funding) are to receive the Appraisal Report no less than 3 days before closing unless they sign a waiver. Then the report is to be provided at the closing.

1. ECOA / Regulation B – Valuations Rule (Primary Rule)​

Applies to:
Consumer credit transactions secured by a dwelling (1–4 family residence, including condos, manufactured homes, etc.).

When the lender must provide it​

A creditor must automatically provide the consumer with a copy of:

Any appraisal, and
Any other written valuation (e.g., AVM, BPO, desktop valuation)
that is developed in connection with the loan application.

Timing requirement​

The copy must be provided:
Promptly upon completion, or
At least 3 business days before consummation (closing)

Whichever is earlier

The consumer does not have to request it.

Applies regardless of outcome​

The requirement applies even if the loan is:
Approved
Denied
Withdrawn
Incomplete

2. Waiver of Timing (But Not Delivery)​

The consumer may waive the 3-business-day-before-closing timing,
But cannot waive receiving the appraisal itself.

Even with a waiver, the lender must still provide the appraisal no later than consummation.

 

[JTip]

Best question of the month.

The simple cure would be for the NAR contract verbiage to be modified or offer more transparency as to the potential product(s) being used in the transaction.

Most DOTs use waiver valuations for damage estimates (uncomplicated with no severance), but the property owner will never see them. They are told about the process for minor damage, but the minute it hits a board of view or court, a USPAP compliant appraisal will be completed.

 

[chad hampton]

They (buyer using regulated lender funding) are to receive the Appraisal Report no less than 3 days before closing unless they sign a waiver. Then the report is to be provided at the closing.

1. ECOA / Regulation B – Valuations Rule (Primary Rule)​

Applies to:
Consumer credit transactions secured by a dwelling (1–4 family residence, including condos, manufactured homes, etc.).

When the lender must provide it​

A creditor must automatically provide the consumer with a copy of:

Any appraisal, and
Any other written valuation (e.g., AVM, BPO, desktop valuation)
that is developed in connection with the loan application.

Timing requirement​

The copy must be provided:
Promptly upon completion, or
At least 3 business days before consummation (closing)

Whichever is earlier

The consumer does not have to request it.

Applies regardless of outcome​

The requirement applies even if the loan is:
Approved
Denied
Withdrawn
Incomplete

2. Waiver of Timing (But Not Delivery)​

The consumer may waive the 3-business-day-before-closing timing,
But cannot waive receiving the appraisal itself.

Even with a waiver, the lender must still provide the appraisal no later than consummation.

Sure, they are required to send appraisals to the buyer. How does the buyer know what they’re looking at? What does a waiver even look like? They changed the name to value acceptance because calling it a waiver was raising a lot of red flags.

A knowledgeable buyer might understand what they are signing when they get a waiver. But it’s pretty easy to trick a majority of the public.

I don’t know the answer, but if there’s an appraisal contingency in a contract, and no appraisal was done, I think that could be a problem.

 

[sputnam]

Seems to be an issue for an aggreived buyer or seller and attornies. Not really relevant to the appraiser.. or in this case.. the appraiser who was never engaged.