Every home we've ever purchased (7) has been purchased with the contingency that it appraises for the price we've paid. I thought this was common practice everywhere and I guess I'm surprised to find out it isn't common in your area. Yes, they will use the appraisal if it comes in low to try to negotiate a new price. I have a friend who recently sold her home for $265,000 and the appraisal came in at $260,000 and the deal was re negotiated to a sales price of $260,000. Likewise a year ago my daughter's home appraised at $165,000 when they had offered $169,000 and the price was re negotiated to $165,000.

If you're afraid that your home won't appraise for the amount the buyer's have offered then look at the difference between the two offers and see which one makes more sense to you.

Question, is the offer from the buyer with the appraisal contingency higher than your asking price? If it is, then don't allow an appraisal contingency. If they made the offer to beat the other offer then they will have to make the difference up with downpayment money. If it is lower than your asking price, an appraisal is part of every mortgage. I have a hard time believing that a bank would loan money and not check to see if the property was worth the value they are loaning. If the buyer should default, the bank would be the one to loose. This is the reason for an appraisal in the first place.

We have always written in that the offer is contingent on the appraisal coming in at the offer price or above or we have the right to renegotiate. That's really standard here.

Gloria

If you take the lower offer that doesn't have the appraisal contingency AND they are financing via a mortgage, then the bank will do an appraisal and you may be in the exact same situation, but with a lower offer and the risk of their financing not going through.

Since the higher offer has the appraisal contingency and they do not have a financing contingency, I think that would be the better offer solely because you won't have to worry about the financing falling through, even if you have to reduce the price.

So, the issue here is not the appraisal since your other buyers would have to get an appraisal anyway to successfully finance the home. The issue here is solid financing and it sounds like the people with the higher offer and appraisal contingency are the better offer.

Here's an update: In Virginia, where our property is located, the standard contract provides the option to include or decline the appraisal contingency. This is a new provision, less than a year old, I am told. Previously, appraisals were only relevant in connection to financing contingencies. An appraisal contingency is not standard in New York or New Jersey, but apparently is in other jurisdictions.

We have decided that we will not accept the appraisal contingency, and will consider accepting a lower offer from a second buyer whose contract does not have the contigency. (BTW, both offers are near, but below, asking price) We will notify the buyer who wants the contingency that he and his realtor should take the time they need to determine the fair market value, and then present us an offer without the contingency. If they want to do an appraisal, we will give them access to the house for that purpose. We will not, however, let some unknown appraiser determine the price at which we sell. It astonishes me that people would delegate this determination to some "expert" of unknown qualifications and experience. I know first hand that appraisals are subjective and can vary greatly from a true market test of price. The fair market value of a house is the price that an informed buyer is willing to pay. Anything else is mere opinion.

We're going through this now, but we were warned by realtors that this could happen (as comps for our house are hard to find). So we accepted the appraisal contingency. We'll see what happens.

I would never purchase real estate without an appraisal contingency. I want an EXPERT, not a realtor, to reinforce what the homeowner has listed the home for. I see too many greedy homeowners that think the home is worth $25,000 more than it is actually worth. So as a buyer I want that expert to either confirm the value or allow me to escape a bad deal. Nobody should pay more for real estate than it's worth. And only an expert can determine that.

BTW, with every deal I've done, the appraisal came in OK.

But by balking at an appraisal, as a buyer I would wonder why. Is your home overpriced? That would raise many red flags to me. And as a buyer I would say "no appraisal, no sale".

I agree with christoph -- a seller not allowing an appraisal contingency to me would be the biggest red flag and I'd run from that deal. A realtor showing me comps isn't good enough, they are not an unbiased third party. An appraiser is an unbiased expert with nothing to gain from his/her appraisal of the property. Very simply put, I want to know I'm paying a fair price for a home and not overpaying.

The appraisal has always been particularly important to us because as transferees we never had the luxury of truly knowing the real estate market of our new city enough to make an informed decision. What would seem like a good deal to us in one city is totally different from another city and the appraisal takes away all that uncertainty.

...We will not, however, let some unknown appraiser determine the price at which we sell. It astonishes me that people would delegate this determination to some "expert" of unknown qualifications and experience.

AFAIK, all appraisers are required to demonstrate expertise on an ongong basis in order to retain their certification. For heaven's sake, why would a buyer trust a house appraisal to the subjective interests of an owner or realtor rather than on objective expert?

I agree with christoph -- a seller not allowing an appraisal contingency to me would be the biggest red flag and I'd run from that deal.

But in this case, the OP has 2 offers and wonders if the contingency offer bid higher hoping to "hold" the house for them, then they will drop the price more. The seller may end up losing the other offer

Annandale responds: Well, we have two offers slightly below asking price, and had a third slightly above the current asking price that we rejected due to a home sale contingency. I think that's a better indication of true market value than what a single appraiser thinks. No doubt buyers (which I am and have been in the past) would like to "escape from a bad deal" they have agreed to. Meanwhile, we may lose our competing offer, and the house if off the market for 2-3 weeks in April. No thanks.

A financing contigency amounts to the same ting as an appraisal most of the time.
Banks will NOT lend money without an apprasial that indicates the amount they are financing is secured.
The only time there is usually any 'play' is when more than 20% is being put down.
The bank will lend 80% of the appraised value without PMI or a second. As long as the down payment reduces the banks exposure to 80% or less of the appraised value they will lend.
A well written financing contingency specifies an amount, a rate, and any points.
If the house does not appraise out for the bank, no loan.

Annandale -- if you accept the offer that is not contingent upon an appraisal but is contingent upon financing, what if the bank does an appraisal and denies the loan to your buyers because the home doesn't appraise? I've never known a bank not to do an appraisal on a home they are loaning money on. Unless your second buyers are cash buyers?

annandale responds: we just accepted the offer that had no appraisal contigency and no financing contingency. The only contingency is home inspection. We took the clean offer for several thousand less. As I've noted above, the appraisal contingency language in the standard contract for Virginia, Maryland and D.C. was introduced on September 1, 2006. I don't believe anyone knows for sure how it will all play out and how it interacts with a financing contingency. As drafted, the appraisal contingency does not restrict the buyer's choice of appraiser. In theory, a buyer could have his brother-in-law do the appraisal. In this turbulent market, I think it's a risk not worth taking, especially since we do not have a financing contingency.

When I sold a home in LA last year, the realtor told me that many of the above listing price offers were made by buyers who had been encouraged by their agents to make any offer that might be accepted and not to worry about the final price, because the at appraisal, a new price would be negotiated. I noted that one seller had accepted an offer of $600,000, but the sellers agent could not get the property to appraise at that price and the final selling price was $570,000. Quite a jolt to the seller.

Unless there is a cash buyer, I don't think that you can really ask a buyer to release the appraisal contingency.
Susan

This is a little far away from the original topic and more related to Susanas comment. Last year when things were crazy here, offers were coming in higher than asking, bidding wars were crazy, I recommended to all my sellers who had offers higher than the asking price to make the offer "not contingent on appraisal". This would prevent people from overbidding just to get the house, then renegotiating later when it didnt appraise. Instead, if the house didnt appraise (very rare in that market), the buyer had to come up with the additional funds to offset the appraisal.

A little off topic, but what if your buyers are paying cash for your home?
Do cash buyers usually request an appraiasal? We are in the country in an area very hard to comp (we did get help pricing our home through a trusted realtor).

I was thankful for my cash buyers because we sold our house to them at a premium and I'm not sure that it would have appraised high enough for financing. We feel the house was worth our selling price but there just wouldn't have been comps to support the price.

"AFAIK, all appraisers are required to demonstrate expertise on an ongong basis in order to retain their certification."

Ummmm, I'm in a small town with small town politics. The local appraiser an ancient old geezer who is good friends with a neighbor who would love my house but would need to get it at a lower price. I'm worried the appraiser will low ball any appraisal.
I'm also in a hard to comp situation and I think I'm going to have trouble getting an appraisal at what I have into the house (no outrageous upgrades, but its an acreage, not a subdeveloped one which is usually cheaper).
I'm not looking for an outrageous profit here, I haven't lived in the house 2 years so what's the point. But I would like to get my money back and I think the appraisal could be a problem.
I find it a bit strange to see people jumping on the appraisal bandwagon here. I read these boards and keep seeing 'your house is worth what someone is willing to pay' not 'your house is worth what an appraiser thinks the bank should front a loan for'.
I guess it all depends on your prespective. I'll be buying a house in another state after this. I know enough to know that both REA market evaluations w/ comps AND appraisals can be subjective, depending on the human element involved. As a seller or buyer you are trying to protect yourself. Annandale is doing the right thing for her.

"It astonishes me that people would delegate this determination to some "expert" of unknown qualifications and experience. "

it astonishes ME that someone would rely on their own non-expert experience, and their real estate agent, to determine what price a house is worth. It's the biggest things they are going to buy; why wouldn't they want to find an expert to help them?

You're well within your rights to ask them to get that appraisal done BEFORE they make an offer, or at least before you accept it, so that no price negotiation is done after you take your home off the market.

I guess I'm just not understanding this. Here it would be unusual for there to be an appraisal contingency. For financing the banks typically do what they call a 'drive by appraisal' which basically means they want to make sure the house is not worth considerably less than the loan amount. The appraisal is not done in any kind of detail, certainly not to argue that a house is valued at $5000 or $7000 less than an offer so everyone can chuck it all and start over. If a house is only worth what someone will pay for it, then doesn't that drive what it's worth? How does an appraiser determine that -- using comps? But the market changes from week to week. Comps might have similar home prices from weeks ago which could be a different situation entirely. Any given house will be worth (in terms of purchase price) more to some people and less to others. It's worth what the buyer is willing to pay for it.

If the only "expert" who can actually set the true value of the house is the appraisal expert, and everything gets renegotiated based on that, then why does the seller and realtor set the listing price in the first place? Maybe the appraiser should do that! Seems kind of stupid to set a listing price, spend days or weeks going back and forth with offers and counter offers to settle on a price, then essentially say, well now that we've done all that, we'll ask the "expert" what it's really worth...

The link below tells you a little about what certified appraisers are all about.

Here is a link that might be useful: About the Appraisal Institute

Real estate appraisal licensing is a state-by-state thing, so a lot of the advice here is coming from a totally different "world" than what the OP seems to be dealing with. I never realized there was so much variation in this across the country- good to keep in mind when changing states!

While appraisals are a stringently objective thing where I am, they sound pretty subjective where annanddale and marys1000 live! Annanddale - That's rough, but it sounds like you made a reasonable decision you'll be comfortable with. Good for you! Best of luck for a smooth transaction here on in.

"If the only "expert" who can actually set the true value of the house is the appraisal expert, and everything gets renegotiated based on that, then why does the seller and realtor set the listing price in the first place? Maybe the appraiser should do that! Seems kind of stupid to set a listing price, spend days or weeks going back and forth with offers and counter offers to settle on a price, then essentially say, well now that we've done all that, we'll ask the "expert" what it's really worth..."
The problem with performing an appraisal before listing a property is, the market over time can change and the previous sold prices used, when an offer comes in, would not reflect a current market value.

I live in MD and believe that the appraisal contingency is standard in the contract. I'm in middle of selling one now and purchasing another. The contingency is a part of both contracts. Unless you're paying cash, the banks will require it.

We didn't get a drive by appraisal. The appraisal was scheduled and the guy did an outside and inside survey. I think he appraised low, but he was above sale price so everybody was happy.

Now if I can just get the buyer's loan officer and realtor on the same page we can close! My close date has been pushed back 3 TIMES. I'm beyond frustrated.