Part II: Adding Appraisal Gap Language? Consider This
In today’s hot market, buyers want to make their offer more appealing, and some consider the addition of “appraisal gap” language. But that can create unexpected problems – and it’s not one of the core elements included in Florida Realtors’ contracts.
ORLANDO, Fla. – Part II of a three-part series: Buyer’s offers. The series focuses on potential pitfalls when buyers attempt to make their offers “more appealing” in today’s market.
Many buyers are tempted to – and often do – remove or change certain aspects of their offer to make it more appealing, in hopes the seller will accept their offer. However, it’s important to understand that these buyers’ changes may not always be the best idea – and could potentially lead to problems.
The first article in the series focused on waiving inspections. This article focuses on appraisals in relation to the transaction and some regular problems we hear on Florida Realtors Legal Hotline.
First up: We hear a lot about agents adding “appraisal gap” language, where buyers say they’ll pay a certain amount over the appraised value. Some expect the appraisal to come in low and, if it does, the buyer can lower the purchase price to whatever that amount is.
The issue with this language? It generally does not mention anything about modifying the purchase price, or, more importantly, that sellers will agree to change the purchase price. Without some sort of language pertaining to changing the purchase price, buyers must still pay the purchase price stated on the contract.
Unfortunately, Legal Hotline callers cannot find much relief from Florida Realtors’ lawyers. The language added is not Florida Realtors’ language, and the Legal Hotline isn’t able to interpret this clause for agents or their clients. If considering this language, it’s best for the parties to speak with an attorney to draft language that ensures it sufficiently covers what the parties intend, or to understand what they have already agreed to.
Second, buyers financing their purchase should be aware that their lender may not allow them to pay the difference laid out in their appraisal gap language. It’s recommended that buyers check with their lender in advance and ask if there are any issues with obtaining financing if they want to add this sort of language to their offer.
Third, buyers looking to “waive the appraisal contingency” should know that Florida Realtors/Florida Bar Contracts have no appraisal-to-the-purchase-price contingency built into their core. If a buyer wants the option to get out of the contract if the property fails to appraise to the purchase price, they should use the Comprehensive Rider F, Appraisal Contingency.
In any instance, a buyer should speak with their own attorney to understand the potential protections they’re waiving and the problems that may arise if they waive various contingencies in order to make an offer more appealing.
Laura Gomes is a Florida Realtors attorney
Note: Advice deemed accurate on date of publication
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