Appraisal Waiving

One major part of the process these days is what we call “waiving appraisals.” When we say that, what we mean is actually waiving the right to drop out if the home doesn’t fully appraise up to the contract value.

Backing up a bit, this is how the process works. Once under contract your lender will order an appraisal to ascertain the market value of the home. If you’re taking a government backed loan (which is practically everyone) you don’t have a choice in this process. This appraisal is a measure to make sure loans aren’t given for more than a home is worth. The Texas contract process (as probably many states) allows you to drop out if your home value comes in low.

In previous times, more buyer market times, the sellers would often come down on the price when the appraisal came in short. Those times are mostly gone, here in Austin. Now when an appraisal comes in low, the sellers expect the buyers to bridge the gap with cash.

To put that into real terms, if there is a 350k home that you had to bid 400k to win, and the appraisal comes back at 380k, then your loan will only loan on the amount of 380k. You will have to make up the difference of 20k out of pocket. That also does not include down payment. If you are putting 3% down (usually the minimum for a conventional loan) then you’d have to bring cash amounts of 11,400 + 20,000 + other closing costs (often 2%+ more).

This is unfortunate, in my opinion, because those without larger cash stores are being priced out of the market. Be that as it may, my job is to help people navigate this market as it is, even if I have little power to change it.