Appraisal contingencies, a buyer protection sometimes used elsewhere, is rarely seen here in the Big Apple.
For buyers in a market where they still have some heft, such a contingency is especially helpful in addition to a financing contingency.
(As almost everyone knows, a financing contingency allows buyers to void a contract without penalty in the event that they don’t get a specified loan.)
An appraisal contingency permits the buyer and seller to negotiate the difference between the selling price and an appraisal below that price. In the event they cannot agree–with the buyer paying more cash, the seller lowering the price or each splitting the difference–the buyer can void the contract and walk away with the deposit.
Clients of mine just came to agreement with a seller for a wreck of a one-bedroom apartment on the Upper West Side, and I have been concerned that the co-op might not appraise for the $415,000 sale price . That would expose them to an obligation to fork over additional cash than they have planned or walk without their deposit. If they pursue the sale, however, there would linger doubts that they had overpaid.
So I insisted on an appraisal clause, which I had to explain to the otherwise competent listing broker. Makes sense, no?
(Although appraisals are an “official” valuation of property that lenders demand to ensure that the collateral for a mortgage is equal to the amount of the mortgage, the current housing crisis proves that appraisals are far less accurate than the market.)
Appraisal contingencies are not only little employed in Manhattan real estate, they are little understood.
It’s a shame.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022