Ever since Fannie Mae introduced new residential appraisal guidelines a couple of years ago, some transactions haven't closed because the listing didn't appraise for the price agreed to in the purchase contract.
There was a time when market value was defined as the price a willing and able buyer would pay and a seller would accept with neither party acting under duress. It would appear that market value is now determined by underwriting requirements, which tend to be conservative and in some cases are not in synch with market realities.
When is an appraisal contingency a good protection?
Buyers who need a large loan amount in order to complete the purchase are at risk if they don't include an appraisal contingency in the purchase contract. An appraisal contingency protects the buyers if the appraised value is less than the price they've agreed to pay for the property.
If the contract includes an appraisal contingency, the buyers can usually withdraw from the contract without penalty, depending how the contract was written. Without an appraisal contingency, the buyers deposit would be at risk if they backed out of the contract because the property didn't appraise for the purchase price.
Some buyers and sellers will renegotiate the price in order to keep the transaction moving forward. To bridge the gap, the sellers may reduce their price and the buyer could make a larger down payment if they have the extra cash.
Wise sellers may wish to avoid any problems by having an appraisal done before listing their property. This could help determine a listing price, and be some ammunition for an appraisal that does come in low.
If you would like to know the current market value on your property, feel confident in contacting Boivin Appraisals, Inc for the answer.