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When a Home Doesn’t Appraise

Image showing a wooden house being inspected to figure out its monetary value.With decreasing home values, it’s no surprise that more home buyers are expressing concern of their home appraising for at least the sales price. What happens if a home doesn’t appraise? Can the buyer terminate? This depends on which box is checked on an addendum to the purchase contract.

The promulgated Texas Real Estate Commission form that agents use in contracts is the ‘Addendum Concerning Right to Terminate Due to Lender’s Appraisal’. In this form, there are three options that buyers may select at the time of writing an offer.

The first box on the form is when the Buyer fully waives their right to terminate the contract based on the appraisal amount. Sellers like to see this box checked for it is in the seller’s best interest.

The second box on the form is a ‘Partial Waiver’. Buyers write in a number that if the opinion of value comes in, at or above this number, the Buyer waives their right to terminate based on the appraisal. Buyer also waives the right to terminate even if the lender does not provide ‘property approval’.

Image shows a mini house and a calculator, figuring out the value of the homeThe third box provides the least amount of protection to the seller but the most protection to the buyer. If buyer checks this box on the addendum form, the buyer may terminate the contract if the appraisal value is less than the specific amount that is written into the addendum form. Buyer may also terminate if the lender determines that the property doesn’t satisfy lender’s underwriting requirements for the loan.

Appraisals can be a tricky issue to work through if the value comes in under the sales price. Baker Realty is here to answer all your questions and walk you through potential issues and their solutions. Contact us if you have any questions!