I’m noticing that there seems to be a trend towards appraisals not coming in at the sales price as often.  The agents I talk to have different opinions as to why that would be, but the general consensus is that lenders are looking at the recent troubles with foreclosures and tightening the belt, which is being transmitted to appraisers loud and clear.

In Pennsylvania, standard form has no contingency for appraisal enshrined in the language, unless the loan is a VA/FHA product which has special provisions in paragraph 6.  That means you’ll have to add something in paragraph 34, “special clauses” which covers your buyers from an low appraisal value.  I usually add something simple like “property must appraise for purchase price”.  Another approach is to include an Appraisal Contingency Addendum to the contract.What can happen if you don’t include this contingency?  A lot.  You may be forced into alternate financing or have to find gift money to make up the difference if the seller won’t renegotiate the sales price.  If you’re 100% LTV (loan amount to value), though, you have an out if the lender won’t issue a commitment (which they wouldn’t without the full appraised value).  If the loan is 80% LTV or less, the lender won’t be worried about a couple of thousand dollars between the sales price and appraised value – but you sure will be.

The appraisal contingency saves a lot of headaches, even if you’re offering full price.  If your state contract forms don’t cover this eventuality, take steps to make sure your contracts do.