Appraisal Contingency Waivers Explained | Tips to Win your next offer!

Is waiving the appraisal contingency on a home purchase smart? In a hot seller’s market, one of the strategies often used to make your offer stronger and win the home you love is an appraisal contingency waiver. So, In today’s video I’m going to explain the 4 types of appraisal contingency waivers and when you should do it.

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Happy May the 4th… May the Fourth be with you! What is an appraisal contingency waiver? And when should I do it?

Let’s answer these questions, but first off, an appraisal contingency waiver is when you agree to accept the home at the price agreed upon, nothing more. The strategy behind an appraisal waiver is to remove the main reason sellers balk at the appraisal… which is value. One big misconception is that you can avoid needing an appraisal all-together but you can’t actually waive it if the lender requires one.

The 4 kinds of appraisal contingency waivers.

#1 The As-Is appraisal contingency waiver
First up is the As-is appraisal contingency waiver. This means that regardless of the value and condition of the property, the buyer will proceed. This is very uncommon since if the lender needs an appraisal (and most every time they do) you’re in big trouble if the home has any defects or health and safety issues. The lender will not loan on that property and your earnest money deposit is at risk.

#2 The Property Inspection Waiver (or PIW)
Next up is the property inspection waiver (aka PIW). This type of waiver should never be used at the offer stage as the lender won’t know if they have a PIW until they put a property address into the application of a borrower and run the automated underwriting.

#3 Full Acceptance of the Sales Price
3rd on the list is the Full Acceptance of the Sales Price appraisal contingency waiver. This is when the borrower agrees to pay the Sales Price no matter what the appraisal says. The danger here is that you are at the mercy of an appraiser and yes, there are some bad ones out there. And once a low value is in, it’s VERY difficult, if not impossible, to get the appraiser to change their mind. At the end of this story, you are stuck making up the full difference between the sales price and the appraised value. One caveat is that if you feel that the comparable sales are strong and value shouldn’t be much of an issue, this type of appraisal contingency waiver is one of the strongest.

#4 A partial acceptance of the sales price.
Last but certainly not least, is the partial acceptance of the sales price. Remember that the strategy behind an appraisal waiver is to remove the main reason sellers balk at the appraisal… which is value. So, it's common to waive the appraisal contingency with the stipulation that in the event of a low appraisal, the Buyer will make up the difference between the sales price and the appraised value not to exceed $XX,XXX (you pick the number). This is the safest way to waive the appraisal (albeit partially) and still protect yourself.

When should you do an appraisal contingency waiver?

#1 You have the cash
If you just straight up have the cash and you won’t be causing yourself any financial headaches by having to come up with an appraisal shortage, then go for it. Cash is King and being able to communicate to the Seller that you have the reserves to make up the difference is huge.

#2 You are putting a greater-than-required down payment on the loan.
The reason I say ‘greater than required’ is very important. The maximum loan amount your lender will give you is based on the appraised value. If after the appraisal your loan amount is still less than or equal to the lender’s max loan for your program then you can FINANCE the difference of the low appraisal and not bring cash. For example, if the maximum loan you can get on your conventional loan is 95%, which would be a 5% down payment and you have already decided to put 20% down, then you have a 15% buffer for the appraisal to come in low. Unlike making the difference up in cash like in scenario #1, this allows you to make up the difference in financing since the lender will allow your loan amount to be as high as 95% of the appraised value.

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