In today’s market, the conversation about the importance of an appraisal and inspection often come up when buyers are structuring their offer to present to the sellers. This is due to the high buyer demand and low inventory that drives the intense competition which leads some home buyers to consider waiving the appraisal and/or inspection contingency to make their offer stand out of all the others.
Understanding what waiving these contingencies will mean to you in the grand scheme of your home purchase is important. Knowledge is power – and certainly is in this case, as your decisions here might cost you more money in the end. Educate yourself on the “what ifs” before waiving either of these contingencies. Discuss this strategy with your Realtor or Attorney would be my best guidance to you. Here’s a snapshot of what to expect from the appraisal and the inspection, and why each one can potentially save you a lot of time, money, and headaches down the road.
Home Appraisal: One of the important hurdles a buyer needs to get over is to secure a mortgage. This entails having a bank appraisal done on the home you are looking to purchase.
Lenders will typically require an appraisal to ensure that your loan-to-value ratio falls within their underwriting guidelines. That appraisal ensures the lender doesn’t loan you more than what the home is worth. The lender uses your home as collateral in the event you default on your payments.
When buyers are competing on properties like they are today, bidding wars and market conditions can push home prices up, and in some cases the buyer’s contract price may end up higher than the value of the home When this happens, you can expect either of the following to happen: Seller can lower their price to the appraised value (unlikely in this market). The price can be negotiated where both buyer and seller agree to meet in the middle, or the buyer can make up the difference if they have the additional funds and are willing to do so. If none of those scenarios play out, the buyer will need to be prepared to walk away.
Home Inspection: Like the appraisal, the home inspection is important because it gives an impartial evaluation of the home. It includes inspecting structural, mechanical as well as health & safety issues. The home inspection is also giving the buyer an education on “how the house works”. While the appraisal determines the current value of the home, the inspection determines the current condition of the home.
Home inspections are the opportunity to discover major defects that were not apparent at a buyer’s showing. Your home inspection is to help you make an informed decision about the house, including its condition.
If there are any concerns during the inspection – an aging roof, a malfunctioning HVAC system, or any other questionable items for example – you have the option to discuss and negotiate any potential issues with the seller. Your Realtor should help you navigate this process and negotiate what, if any, repairs that may need to be made before the sale is finalized.
Keep in mind – home inspections are critical because they can shed light on potential challenges you may face as the new homeowner.Without an inspection, and as the new homeowner, serious, sometimes costly issues could come up down the line that you are not prepared to handle.
Both the appraisal and the inspection are important steps in the homebuying process. They protect your best interests as a buyer by providing unbiased information about the home’s value and condition – something you should ponder on before you consider waiving these contingencies. Speak with your Realtor or Attorney for their best guidance – remember knowledge is power!
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