Expert: liznarr - 7/22/2009

Question
I already have a contract on a residential property in Maryland, but the house was appraised for about 20k less. my agent asks me to sign a addendum to sales contract which states that I the purchaser want to remove the FHA appraisal contigency if the seller agrees to the appraisal price. what exactly does that mean
Thank you

Answer
Hi Lindi,

FHA Appraisal Contingency documents basically state that the subject property being purchased must appraise for at least the sales price as reflected on a Contract of Sale.  If the property appraises for MORE THAN the sales price, that is simply a windfall for a Purchaser.  

If a property appraises for less than the sales price – again, as reflected on your contract of sale -- with FHA and VA loans, a Purchaser has the right to walk away and receive all earnest money back, with no further obligation under the Contract of Sale.  

In the above instance, the Seller can also agree to reduce the price of the house as reflected on the appraisal which came in UNDER the sales price.

Without having seen the actual Addendum your agent is asking you to sign … if the effect of the Addendum your agent wants you to sign to remove the FHA appraisal contingency is ALSO  LOWERING the sales price of your Contract of Sale to reflect the appraised value of 20k or less as you said, you should be safe to proceed.  Be absolutely positive, however, that any document you sign states a reduced sales price, amending your Contract of Sale, as reflected by the low appraisal.  It goes without saying that the Seller should also sign the same document.

If you have additional questions about the document itself, I would suggest you ask your closing attorney to make sure the document says what you “think” it says.

With some very limited exceptions, you should NEVER pay more than appraised value for a property.

Good luck to you, and write again if you have additional questions.

Regards,
Elizabeth