When you’re selling a duplex, triplex or fourplex – or even a single-family home, for that matter – your REALTOR® will talk to you about contingencies. One of the most common contingencies in real estate contracts is the appraisal contingency.

What is an Appraisal Contingency?

A contingency is a condition that must be met before a real estate transaction can be completed. An appraisal contingency is a specific type that requires the property to be appraised at or above the sale price.

Lenders hire appraisers (at borrowers’ expense) to evaluate properties and find out whether they’re “worth” the asking price. If a property is not, in the appraiser’s opinion, worth the asking price, the lender will most likely decline to let the buyer borrow that amount or offer them a lesser amount to purchase the property.  In this case the buyer would need to come up with additional cash, which may “kill the deal”

For example, if you’re selling a triplex for $600,000 but the appraiser says it’s worth $580,000, the lender will most likely offer to let the buyer borrow only that amount. The buyer can then decide whether to come up with the additional $20,000 to meet your asking price (or negotiate with you in other ways) or walk away from the deal.

Who Does the Appraisal Contingency Protect?

The appraisal contingency is in place to protect the lender and the buyer. That means that if the appraisal comes in low, the buyer has the option to walk away from the deal without losing his or her earnest money deposit or come up with additional cash out of their pocket.

(In some cases, buyers waive the appraisal contingency. If that happens in your case, the buyer cannot walk away from the deal without consequences.)

What Can You Do if the Appraisal Comes in Low on Your Duplex, Triplex or Fourplex?

If the appraiser assigned to your property believes it’s worth less than what you’re asking, you have some options. You may:

  • Make improvements that boost the property’s value
  • Renegotiate the sale price
  • Offer seller financing
  • Cancel the deal and relist the property
  • Consider another offer on the property

Either way, it is important to price your property appropriately for this reason.  Otherwise, there could be issues which could ultimately “kill the deal”.

A qualified agent with years of experience in the real estate market can help you determine comps, the best price and market value for your property, based on your particular market. When you’re ready to learn more, connect with me today. I’m happy to help!

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