\n<\/div><\/div>\n<\/div>\n<\/div>\n

By Meredith Caruso<\/div><\/div>\n

What happens when \u201cBuyers waive appraisal contingency\u201d is added into the sales contract? For a lot of Legal Hotline callers, the provision doesn\u2019t do what they think.<\/p>\n<\/div>\n

ORLANDO, Fla. \u2013 We\u2019ve already done a three-part series of articles<\/a> in previous Legal Newsletters on the risks of waiving certain contract contingencies, but I wanted to write about something we hear far too often on Florida Realtors\u2019 Legal Hotline.<\/span><\/span><\/p>\n

Let me share with you a discussion I had on the Legal Hotline recently: A buyers\u2019 agent called in about a transaction and said that the parties had the following line in the additional terms: \u201cBuyers waive appraisal contingency.\u201d The parties were using the Florida Realtors\/Florida Bar AS IS Residential Contract for Sale and Purchase (\u201cAS IS\u201d Contract\u201d) so this article will refer to the language in the Florida Realtors\/Florida Bar contracts (\u201cFR\/Bar Contracts\u201d).<\/span><\/span><\/p>\n

It\u2019s a short sentence, isn\u2019t it? \u201cBuyers waive appraisal contingency.\u201d But it\u2019s not<\/em> short of being anything other than problematic in most situations.<\/span><\/span><\/p>\n

First, the above language presumes that the contract has an appraisal contingency that can be waived. Let\u2019s be very clear on something: the FR\/Bar Contracts do not contain a built-in appraisal-to-the-purchase-price contingency. As a result, adding language like the above to the additional terms sections effectively waives something that didn\u2019t exist in the first place.<\/span><\/span><\/p>\n

If a buyer wants to ensure that the appraisal of the property matches the purchase price \u2013 and if not, they can cancel \u2013 they need to add<\/em> the appraisal rider to the contract. Only the appraisal rider that goes with the FR\/Bar contracts gives buyers the right to terminate the contract if the appraisal is less than whatever value they\u2019ve put in the blank on the form. On the other hand, If buyers want to waive their ability to cancel the contract if the property appraisal doesn\u2019t equal the purchase price, they simply don\u2019t add that rider to their offer.<\/span><\/span><\/p>\n

Wait, what<\/em>? \u201cBut there\u2019s appraisal language in the financing paragraph,\u201d you\u2019re saying.<\/span><\/span><\/p>\n

You are correct, there is. But based on calls to the Legal Hotline, many callers don\u2019t understand what the financing paragraph actually says. But I will get to that in a minute.<\/span><\/span><\/p>\n

Second, adding \u201cBuyers waive appraisal contingency\u201d also assumes that buyers have the authority to waive the appraisal. While it\u2019s possible for buyers to obtain their own appraisal, a majority of the time the appraisal is really the lender\u2019s<\/em> appraisal (or other valuation) of the property. So when buyers add this language to the contract, they\u2019re effectively saying that the buyers are waiving the lender\u2019s<\/em> appraisal and, seemingly, the lender\u2019s<\/em> ability to refuse a loan based on the results of the appraisal.<\/span><\/span><\/p>\n

While I personally haven\u2019t conducted polls on this, I have yet to hear of any mortgage company that will lend funds without some sort of property valuation. This is typically a part of their lending process. To me, adding something like the above verbiage is as if the buyers are saying, \u201cWe are waiving our lender\u2019s loan approval process to the extent it involves any appraisal of the property.\u201d<\/span><\/span><\/p>\n

Yet, in reality, the lender will still be going out and obtaining whatever type of property valuation they need to process and evaluate the loan. And the results of that valuation process will be a factor<\/em> in the lender\u2019s willingness to lend the funds to the buyers. (Note: Each lender has its own processes.)<\/span><\/span><\/p>\n

Let\u2019s address the financing language. What we\u2019re hearing on the Legal Hotline is that many callers believe that buyers can cancel if an appraisal doesn\u2019t meet the purchase price. As I said earlier, this is just not the case.<\/span><\/span><\/p>\n

In fact, if you read paragraph 8(b), you will see that the term \u201cpurchase price\u201d appears nowhere in that paragraph. But let\u2019s nail down what 8(b) does<\/em> say about appraisals.<\/span><\/span><\/p>\n

When the most recent FR\/Bar contracts were revised, the definition of Loan Approval was amended to include an appraisal. Buyers with a financing contingency are attempting to get a Loan Approval, which is not only obtaining a mortgage loan covering the terms as laid out in the contract, but also <\/em>\u2013 and here is the actual language \u2013 \u201cBuyer\u2019s mortgage broker or lender having received an appraisal or alternative valuation of the Property satisfactory to lender, if either is required by lender, which is sufficient to meet the terms required for lender to provide Financing for Buyer and proceed to Closing (\u201cAppraisal\u201d).<\/span><\/span><\/p>\n

Let\u2019s break that down a bit in hopefully some plain language.<\/span><\/span><\/p>\n

If the lender<\/em> requires an appraisal\/valuation of the property as part of the lender\u2019s<\/em> process in order to provide buyer financing, then that appraisal\/valuation has to be satisfactory to the lender<\/em>. And note that it doesn\u2019t say the appraisal\/valuation has to be equal to the purchase price! The appraisal\/valuation only has to be sufficient to meet the terms required for the lender.<\/em><\/span><\/span><\/p>\n

I emphasized the word \u201clender\u201d because I want you, the reader, to note that we are not talking about any sort of appraisal\/valuation that is satisfactory to buyers<\/em>. Again, if buyers<\/em> want an option to get out of the deal when there\u2019s a difference in the property purchase price vs. the property\u2019s appraisal, they\u2019ve got to use the rider I mentioned earlier.<\/span><\/span><\/p>\n

In emphasizing the word \u201clender,\u201d I also hope readers can see why writing \u201cBuyers waive appraisal contingency\u201d in the additional terms doesn\u2019t really work or likely doesn\u2019t have the intended effect.<\/span><\/span><\/p>\n

Bottom line: Lenders aren\u2019t parties in the sales contract. Buyers can waive whatever they want, but when it comes to the waiver of appraisals\/property valuations, they can\u2019t force a lender to comply with contract language, including any reference to the lender\u2019s<\/em> appraisal part of the loan process.<\/span><\/span><\/span><\/span><\/p>\n

Meredith Caruso is Associate General Counsel for Florida Realtors<\/em><\/span><\/span>
Note: Advice deemed accurate on date of publication<\/span><\/span><\/p>\n

\u00a9 2022 Florida Realtors\u00ae<\/span><\/span><\/p>\n<\/div><\/div>\n

Go to Source<\/a>
\nAuthor: izaakh<\/p>\n","protected":false},"excerpt":{"rendered":"

By Meredith Caruso What happens when \u201cBuyers waive appraisal contingency\u201d is added into the sales contract? For a lot of Legal Hotline callers, the provision doesn\u2019t do what they think. ORLANDO, Fla. \u2013 We\u2019ve already done a three-part series of articles in previous Legal Newsletters on the risks of waiving certain contract contingencies, but I wanted to write about something we hear far too often on Florida Realtors\u2019 Legal Hotline. Let me share with you a discussion I had on the Legal Hotline recently: A buyers\u2019 agent called in about a transaction and said that the parties had the following line in the additional terms: \u201cBuyers waive appraisal contingency.\u201d The parties were using the Florida Realtors\/Florida Bar AS IS Residential Contract for Sale and Purchase (\u201cAS IS\u201d Contract\u201d) so this article will refer to the language in the Florida Realtors\/Florida Bar contracts (\u201cFR\/Bar Contracts\u201d). It\u2019s a short sentence, isn\u2019t it? \u201cBuyers waive appraisal contingency.\u201d But it\u2019s not short of being anything other than problematic in most situations. First, the above language presumes that the contract has an appraisal contingency that can be waived. Let\u2019s be very clear on something: the FR\/Bar Contracts do not contain a built-in appraisal-to-the-purchase-price contingency. As a result, adding language like the above to the additional terms sections effectively waives something that didn\u2019t exist in the first place. If a buyer wants to ensure that the appraisal of the property matches the purchase price \u2013 and if not, they can cancel \u2013 they need to add the appraisal rider to the contract. Only the appraisal rider that goes with the FR\/Bar contracts gives buyers the right to terminate the contract if the appraisal is less than whatever value they\u2019ve put in the blank on the form. On the other hand, If buyers want to waive their ability to cancel the contract if the property appraisal doesn\u2019t equal the purchase price, they simply don\u2019t add that rider to their offer. Wait, what? \u201cBut there\u2019s appraisal language in the financing paragraph,\u201d you\u2019re saying. You are correct, there is. But based on calls to the Legal Hotline, many callers don\u2019t understand what the financing paragraph actually says. But I will get to that in a minute. Second, adding \u201cBuyers waive appraisal contingency\u201d also assumes that buyers have the authority to waive the appraisal. While it\u2019s possible for buyers to obtain their own appraisal, a majority of the time the appraisal is really the lender\u2019s appraisal (or other valuation) of the property. So when buyers add this language to the contract, they\u2019re effectively saying that the buyers are waiving the lender\u2019s appraisal and, seemingly, the lender\u2019s ability to refuse a loan based on the results of the appraisal. While I personally haven\u2019t conducted polls on this, I have yet to hear of any mortgage company that will lend funds without some sort of property valuation. This is typically a part of their lending process. To me, adding something like the above verbiage is as if the buyers are saying, \u201cWe are waiving our lender\u2019s loan approval process to the extent it involves any appraisal of the property.\u201d Yet, in reality, the lender will still be going out and obtaining whatever type of property valuation they need to process and evaluate the loan. And the results of that valuation process will be a factor in the lender\u2019s willingness to lend the funds to the buyers. (Note: Each lender has its own processes.) Let\u2019s address the financing language. What we\u2019re hearing on the Legal Hotline is that many callers believe that buyers can cancel if an appraisal doesn\u2019t meet the purchase price. As I said earlier, this is just not the case. In fact, if you read paragraph 8(b), you will see that the term \u201cpurchase price\u201d appears nowhere in that paragraph. But let\u2019s nail down what 8(b) does say about appraisals. When the most recent FR\/Bar contracts were revised, the definition of Loan Approval was amended to include an appraisal. Buyers with a financing contingency are attempting to get a Loan Approval, which is not only obtaining a mortgage loan covering the terms as laid out in the contract, but also \u2013 and here is the actual language \u2013 \u201cBuyer\u2019s mortgage broker or lender having received an appraisal or alternative valuation of the Property satisfactory to lender, if either is required by lender, which is sufficient to meet the terms required for lender to provide Financing for Buyer and proceed to Closing (\u201cAppraisal\u201d). Let\u2019s break that down a bit in hopefully some plain language. If the lender requires an appraisal\/valuation of the property as part of the lender\u2019s process in order to provide buyer financing, then that appraisal\/valuation has to be satisfactory to the lender. And note that it doesn\u2019t say the appraisal\/valuation has to be equal to the purchase price! The appraisal\/valuation only has to be sufficient to meet the terms required for the lender. I emphasized the word \u201clender\u201d because I want you, the reader, to note that we are not talking about any sort of appraisal\/valuation that is satisfactory to buyers. Again, if buyers want an option to get out of the deal when there\u2019s a difference in the property purchase price vs. the property\u2019s appraisal, they\u2019ve got to use the rider I mentioned earlier. In emphasizing the word \u201clender,\u201d I also hope readers can see why writing \u201cBuyers waive appraisal contingency\u201d in the additional terms doesn\u2019t really work or likely doesn\u2019t have the intended effect. Bottom line: Lenders aren\u2019t parties in the sales contract. Buyers can waive whatever they want, but when it comes to the waiver of appraisals\/property valuations, they can\u2019t force a lender to comply with contract language, including any reference to the lender\u2019s appraisal part of the loan process. Meredith Caruso is Associate General Counsel for Florida RealtorsNote: Advice deemed accurate on date of publication \u00a9 2022 Florida Realtors\u00ae Go to Source Author: izaakh<\/p>\n","protected":false},"author":4,"featured_media":6617,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/nwfl4sale.com\/wp-json\/wp\/v2\/posts\/6616"}],"collection":[{"href":"https:\/\/nwfl4sale.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nwfl4sale.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nwfl4sale.com\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/nwfl4sale.com\/wp-json\/wp\/v2\/comments?post=6616"}],"version-history":[{"count":0,"href":"https:\/\/nwfl4sale.com\/wp-json\/wp\/v2\/posts\/6616\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/nwfl4sale.com\/wp-json\/wp\/v2\/media\/6617"}],"wp:attachment":[{"href":"https:\/\/nwfl4sale.com\/wp-json\/wp\/v2\/media?parent=6616"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nwfl4sale.com\/wp-json\/wp\/v2\/categories?post=6616"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nwfl4sale.com\/wp-json\/wp\/v2\/tags?post=6616"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}