How Appraisal Contingencies have Become the Most Important Part of Offers in Northern Virginia
The Seller’s market in Northern Virginia, caused by a shortage of houses on the market and extremely low interest rates, has led to rapidly rising prices. Prices are going up so quickly right now that appraisers are having a difficult time justifying them based on other recently sold houses.
Typically, when a buyer makes an offer on house, they will include an Appraisal Contingency. The appraiser uses similar sales that have closed in the last few months to determine an appraised value for the house. If the appraised value is lower than the actual sales price, the buyer has the right to renegotiate the price with the seller for as low as that appraised price. Mortgage Companies base their loans on appraised value, not sales price. So anyone buying a house above appraised value has to pay the difference out of pocket.
Very high competition among buyers for the few houses currently on the market has led many buyers to remove the Appraisal Contingency in order to win bidding wars. These buyers are promising home owners that they will complete the purchase at the agreed on price regardless of what value an appraiser puts on the house. As offers come in on houses, sellers aren’t just interested in the highest price, but also in a buyer who will waive this contingency.
Some buyers are also making offers with a “hybrid” contingency, agreeing that they will complete a sale at a given dollar amount over the appraised value. This gives their offer a boost over other offers with the contingency, but also limits the extra money they would need to come up with to a specific amount.
Sellers are benefiting both from the rising prices in NoVA and from the fact that appraisal risk is being taken out of their contracts. If you plan on selling your house this year, we’d like to help you time that sale to take advantage of this market.