Ask a Realtor: Does deleting or gapping the appraisal and inspection contingency improve an offer?
On Real Estate
Dear Paula: My wife and I have been looking to purchase a home in the Vail Valley and have missed out on a couple of opportunities due to multiple offer situations. When we find a home we really love, we don’t want to miss out again. Should we consider deleting the appraisal contingency or offer with an appraisal gap? And what about the inspection? Can we make our offer more attractive by removing the inspection contingency? — Anxious Buyer
Dear Anxious Buyer: This is a popular question as buyers look at ways to make their offer as attractive to the seller as possible. Sellers look for not only the highest offer but also the best terms. Removing contingencies creates a cleaner offer with generally less time and stress. This also tells the seller the buyer is very motivated.
For inspections, I always recommend having one done since it protects both the buyer and seller. It’s important a buyer knows what they are purchasing in order to make a sound decision. If they are not aware of the defects, especially structural, mechanical, electrical or plumbing issues, it can lead to problems down the road. Sellers may have the impression they don’t need to disclose just because the buyer may opt out of an inspection. However, it does not eliminate sseller’s risk and liability for non-disclosure of adverse material facts.
As for appraisals, it really depends on the situation, but buyers should take note to work with an experienced broker who can advise them on the advantages and risks. The buyer is responsible for this cost. Cash buyers may or may not get an appraisal, but if getting a loan, lenders will typically require one.
Following are some key factors to consider in waiving an appraisal and/or inspection:
- Cash buyers should consider having an appraisal even if waiving the contingency. It helps minimize the risk of not getting a positive return if/when they sell later.
- Buyers waiving the appraisal contingency completely remove their right to terminate the contract based on appraisal.
- For a financed purchase, most lenders require an appraisal. However, the buyer can still remove the appraisal contingency with the understanding they will bring cash to the closing table if appraisal comes in lower than purchase price.
- This is an offer to make up the difference up to a certain amount in the event an appraisal comes in lower than the asking price. Let’s say a buyer offers to purchase a home for $350,000 with a $5,000 appraisal gap and the appraisal comes in at $345,000. The buyer would pay the $5,000 difference. If the appraisal comes in at $340,000, the buyer would have the option of terminating based on appraisal.
- If no inspection is done, the buyer takes the risk of not discovering defects with the property that could cost a lot of money after closing. Buyers are purchasing the property “as is,” and should be aware of what that means.
- If an inspection is done and the buyer has waived the inspection contingency, they cannot terminate based on the inspection.
- For sellers, disclosing adverse material facts, whether a buyer acquires an inspection or not, is still required.
- Similar to an appraisal gap, the buyer can terminate the contract if inspection defects are expected to cost more to repair/replace than the gap amount offered.
- Offering an inspection gap can be a good tool for buyers, as it is attractive to a seller that a buyer isn’t going to nitpick every detail, and instead focus on the more expensive repairs that could arise in an inspection.
Most importantly, don’t buy out of desperation. The market is beginning to soften so more properties will be coming on the market. This is where working with a professional real estate agent can make all the difference -— providing objectivity, experience, and knowledge in presenting the best possible offers and negotiating contracts so the sale/purchase is a win-win for both parties over the long-term.
Best wishes in your search.
Paula Fischer has lived in the Vail Valley for more than 26 years and is a 15-year award-winning broker associate with locally-owned Berkshire Hathaway HomeServices Colorado Properties. Specializing in the resort/luxury market, spanning from East Vail to Gypsum, Paula also brings a unique perspective for buyers looking to build as a 30-year co-owner and operator of a local construction company with her husband. She can be reached at 970-376-8400 or email@example.com.