My parents are in the process of selling their house. They have a buyer who made an offer; they countered; she accepted and all was good till they got the contract.
There's a clause in the contract that if an appraisal comes in at less than the selling price, the contract becomes null and void.
My parents' realtor is telling them that he's seeing such clauses more and more in the past month or so and that they should sign the contract as is.
I've never heard of such a thing and have huge concerns because the few times I've had appraisals, they've come in at far less than the market value of the house.
They can't sign the contract till Friday and the seller has seven days to get an appraisal of her choice in that time. Their house is still on the market, but I'm concerned that they're wasting their time and this can't come to any good.
Has anyone seen a clause like this? Or know anything about this kind of clause?
I thought that was standard due to the fact that banks will not approve financing above the appraisal value, so a buyer is responsible for making up the difference in cash if the appraisal does not match the asking price. A buyer CAN choose to make up the difference, but I thought that clause was pretty standard due to financing issues. But maybe it's regional? We had no contingencies, but we still had that clause in our contract.
ETA: ours was a multiple offer situation, so we offered above asking price and we truly were not sure if the appraisal would match.
In this market, I think it's fairly standard. If they can't get the house appraised for what they're paying for, they likely couldn't get financing, unless they paid down the amount, kwim? Since the market is tanking (in most areas), it makes sense to put that clause in. OTOH, a real estate agent should be able to do a market analysis of what the housing market is like in their area and let you know how the accepted price stands up against that.
Standard here as well (or so our realtor says)... I don't understand why someone would want to purchase a house that wasn't worth what they were paying for it? Or am I missing something here?
I think it depends on what the difference is between the agreed upon price and the appraisal. It also depends on the house and the buyer. If you are buying a house that you consider to be your "forever" home that you feel is "perfect" for you that you plan to live in for 20+ years and the house appraises slightly under asking price (say $5K), then I could see coming up with the difference because of course it will appreciate more than that over time. Home values fluctuate pretty widely so what is a "good deal" right now maybe won't be in a year or wasn't last year. I think it depends on what kind of investment it is and the "norm" for the market you live in. I think it is fairly common in hot real estate markets, too, b/c when there is a multiple offer situation the bidding sometimes eclipses the appraisal value, but there are still bidders who will pay over the appraisal house to get the house/property/location they want in a hot market.
I agree with everyone else that this is pretty standard. When you say that you have had appraisals in the past that came in below market value, what type of appraisal are you talking about? Usually there is a difference between a mortgage appraisal and, say, a tax appraisal or even an insurance appraisal. A tax appraisal will often come in a lot lower than the market value, while a mortgage appraisal should come in right at market value.
It was standard here even in a then-seller's market when we bought our house in early 2006, for the reason stated above: the buyer can't get financing for any amount over the appraisal value.
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Appraisal clause in a contract?
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