When purchasing a home in Arizona with a financing contingency (i.e. the buyer’s offer is contingent upon successfully obtaining a loan), there is a built-in contingency in the Arizona Association of Realtors Residential Purchase Contract that the home must appraise for at least the sales price. We are often asked by our buyers during the negotiating process, “what do we do if the home doesn’t appraise?”
Great question. In our state, the buyer has 3 options in the event the home doesn’t appraise for the price she agreed to pay for the home:
1) The buyer can choose to move forward with the contract. Depending on the loan program and the amount the buyer is contributing as a down payment, the buyer may need to increase her down payment to make up the difference between the appraisal price and the agreed upon sales price.
For example, say the purchase price of the home is $1,000,000, and the buyer’s loan program requires him to put 20% down – $200,000. If the property appraises for $980,000, the buyer would have to come up with a down payment of $220,000.
2) The buyer could try to negotiate a reduction in purchase price with the seller. Asking the seller to reduce the sales price to the appraisal price, or even splitting the difference with the seller, or any other amount of contribution from the seller, would alleviate some or all of the difference the buyer would have to make up in terms of her down payment to move forward.
3) The buyer can choose to cancel the contract. If the buyer is unwilling or unable to make up the difference between the appraisal price and the sales price, and if the seller is also not willing to renegotiate the price, this may be the buyer’s only option.
As far as the boilerplate terms of the Arizona Purchase Contract are concerned, the appraisal contingency is only automatically included in the contract when there is a financing contingency. If the buyer is paying cash, she can still elect to have an appraisal contingency – it would simply need to be added to the additional terms of contract.
Rest assured that as the buyer the ball is in your court and you have options in the event of a “low appraisal” when your offer is contingent on financing.
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We are Scottsdale real estate agents who specialize in the DC Ranch area. Reach out to us if we can help you buy or sell a home in our area.
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The Matheson Team – RE/MAX Fine Properties
21000 N. Pima Rd., #100, Scottsdale, AZ 85255