Just thought in here, I am no expert. Why would there be any requirement in the law or the contract mandating an appraisal? An appraisal is normally something the financier is interested in. If I have cash, I would expect that the law would permit me to pay as much or as little as I wanted for the real property. Whomever is financing it would be very concerned about the market value, but I would not think they are a party to the contract for sale. Interesting question. I would also expect that the contract is contingent upon financing and that there would be stipulations about the earnest money in that situation. Let us know what you figure out, please.

Good point Justin. This is not a cash transaction which I should have clarified.

Assuming there is a mortgage involved, neither the buyer or the buyer's agent will request the appraisal. The lender requests the appraisal.

Right. But, does the lender not care if appraisal is not done within due diligence (DD)? The whole contract talks about the items that are completed within DD. Appraisals, inspections, etc.

The lender is not a party to the transaction, so they can always back out or not approve. If the contract stipulates that you have a DD window to get everything done, then the lender, acting on the buyer's behalf, technically may only be able to have access to the property for appraisal purposes within that DD window. If they fail to do that, they may be prevented from having further access to the property. The lender has no skin in the game yet right? This is the sort of contingency planning that you need a RE attorney or good realtor to comment on. It sounds like this is all in regard to earnest money forfeiture and I would think that would be pretty clear in the contract for sale. Now interpreting it would be another matter.

Thanks for your comment Justin.

Most lenders here will intentionally wait until the optionbperiod/DD period is over before ordering the appraisal, to avoid wasting the buyers money on it, since they may back out and get earnest money back thru the end of the option/DD period.

Our contracts have it written into the 3rd party financing adendum that if house doesn't appraise for the sale price, buyers can get refund of earnest money.

Why don't you just read your contract? Why would a seller care when appraisal is done, since most states require house to appraise for sales price or buyer can back out?

Exactly what Salti said. A seller has to get their stuff in order, as well.

It happens all the time. No sale is for sure until all parties sign up for closing and actually sign the documents,. In many markets, deals fall through at the last minute all the time. It happened to my parents, it happened to me, and my son and now ex-wife walked the day of closing. In my son 's behalf, he was mortified. She changed her mind.

The appraisal and financing are entirely separate operations and have nothing to do with the due diligence period or buyer inspections. There are times that a closing is delayed due to the appraisal not being completed. Typically this would happen because it wasn't ordered in time.

To try and speed things along, a seller needs to be certain to arrange prompt access to the property for all of the various parties needing access.

Loss of financing, failure of financing and low appraisal are reasons to cancel a sale, but are not reasons for the buyer to forfeit the deposit or earnest money.

Saltidawg- if the house is correctly priced, it normally would appraise. It's not right to expect the buyer to risk paying for an appraisal before their DD period is up. If the appraisal is done/approved by underwriting before closing, the buyer has fulfilled the terms of the contract. If the house fails to appraise, the buyer normally gets their earnest money back. Expecting a buyer to pay for an appraisal before the DD period is up just puts them in a position to lose even more money, if they couldn't come to terms on repairs, for example, and wanted to terminate.

I understand that as a seller it would be nice to have the appraisal done early, but it is unreasonable to expect it done before DD period expires.

Patrick,

Here in NC, we use a Due Diligence Period as you are aware. The appraisal is not REQUIRED to be performed during this period. However, it is very wise to do so, because if it comes back low, the seller has more incentive now to do nothing. The buyer still has to perform per the contract, or he/she will be in default. The buyer, if they do not move forward to purchase the home at the sales price, will be in default and the seller keeps the Due Diligence Fee, AND the Earnest Money Deposit. These funds are looked at as compensatory in nature and not punitive, therefore the seller would still have the option for mediation against the buyer for the breech.

Personally, I let my client's lenders know exactly what the Due Diligence date is and they know for sure that we expect the appraisal to be completed, AND delivered, at least 24 hours prior to this date. It costs about $400 for an appraisal, far less than the cumulative costs of the survey, the inspection, attorney costs (which they will charge prorated even if there is no closing), moving fees, and not to mention the emotional stress of waiting until the end to find out if the home appraises. So the arguement for waiting until the end in order to save funds is silly.

Patrick, in our contracts, there is no conventional financing contingency... But, if the buyer's appraisal comes back low, and it is performed during the Due Diligence Period, they have the conventional options that would come with a financing contingency. Your buyer's agent and lender is putting your buyer at risk by not having the appraisal done during this time. They also lose all leverage to negotiate with the seller to lower the price to match the low appraisal, because the seller knows that the buyers have to perform, unless they want to lose their fee and deposit.

Yes, as of 2011, when we switched over using the Due Diligence clause, the buyer will lose the Earnest Money Deposit and the Due Diligence Fee if they back out of the deal for any and or no reason except for a seller default.

As far as how to entice the buyer to get the appraisal soon, you would first have to find out why they have elected to wait to do it until the very end. My guess is that their agent and their lender just dropped the ball and do not understand the repurcussions if it does come back low outside of the Due Diligence Period.

Nc realestate guy...does your state not allow buyer to terminate contract if inspection is done and repaired items cannot be agreed upon? And do your state contracts not allow termination and refund of earnest money if house fails to appraise and seller won't reduce sales price to match appraisal?

When we bought our house, the lender actually jumped on appraisal within DD. I actually tried to stop them because I was more concerned with inspections. The lender told me my worry was unnecessary because they would have eaten the cost of the appraisal if the deal fell through. With that said, every lender is different. Every situation is different, too.

"Nc realestate guy...does your state not allow buyer to terminate contract if inspection is done and repaired items cannot be agreed upon? And do your state contracts not allow termination and refund of earnest money if house fails to appraise and seller won't reduce sales price to match appraisal?"

Elapso, during the due diligence period, the buyer can terminate the deal and get back their deposit, for any and/or no reason. Same for the repairs... same for the appraisal, same for the failure to get the financing, same for deciding that they do not like the neighbors, the same for waking up one day and telling the sellers to go take a hike for no apparent reason... as long as they terminate during the due diligence period. After the due diligence period, then the buyers have committed themselves to a closing, and if not, they are in default, and will lose their due diligence fee and the deposit.

In the case of negotiated repairs, the due diligence period gets rid of the constant bickering between parties of what items are or are not "performing the function for which it was intended". Now, the buyer requests a repair list and the seller agrees or not and the negotiation goes from there. If the seller tells the buyer to go take a hike regarding the requested repairs, the buyer can continue with the transaction or terminate the contract prior to the due diligence period and the buyer will get the deposit back, but not the due diligence fee.

Patrick, is what I am telling you jive with what you are experiencing?

Nc realestateguy- so must appraisals in your state be done during the DD period in order to get earnest money back if it doesn't appraise, seller refuses to lower sale price to appraised value and they terminate?

We are past DD now. Not sure I stated it or not but I'm the seller. We just haven't heard about status of appraisal yet. We made it through inspections. So, if buyers backed out at this point then we would get the earnest money as long as house appraised for the sales price ? Is that right? Thx all.

Correct...

Do you have a seller's agent?