- Appraisal Contingency
For home purchases that require funding, an appraisal is required to determine the overall value of the home. The lender won't lend more than what a home appraises at, so should an appraisal come in lower than the asking price, a problem arises if a buyer doesn't have the cash to make up the difference. For this scenario, an appraisal contingency is helpful: it allows the buyer(s) to back out of a deal if the appraisal price is not as high as the purchase price, or it allows the buyer and seller to re-negotiate the purchase price, giving the buyer the ability to back out of the deal if the seller declines to come down in price. Some buyers are adding an "Appraisal Guarantee Addendum" to guarantee that they will provide additional funds if the appraisal comes in low.
- Financing Contingency
The buyer is responsible for funding the home purchase, whether with cash, mortgage loan, or other funding. If the purchase is dependent on financing a loan, then a financing contingency will likely be included in the contract. A financing contingency helps protect the buyer should the loan not come through. This contingency can also include other details regarding the purchase, like the type of loan, the amount of the down payment, the loan term, and even the interest rate. This is an important contingency in that it protects the buyer, allowing him/her to walk away from the deal without any repercussions or loss of earnest deposit, which is incredibly valuable to the buyer.
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