In San Francisco’s competitive residential real estate market it is becoming increasingly common for buyers to waive a home appraisal contingency. Here are a few things to understand about taking that step:

Why are San Francisco home buyers waiving appraisal contingencies?

To make their home buying offer more competitive. Waiving this contingency appeals to home sellers by limiting the possibilities the deal will fall through and securing the sale of their property.

How often do homes appraise lower than the offer price?

This is actually quite common and has been increasingly so in 2021. According to CoreLogic data, 19% of all home appraisals came in lower than the contract price in May 2021. In a hot market like the Bay Area, appraisal values do not move as quickly as the forward-looking market. Appraisers are bound to base the home value on recent but closed transactions.

What are the options for San Francisco home buyers with a low appraisal?

When your home appraises for less than its purchase price, there are a few potential options:

1. Buyer increases the down payment to meet new loan-to-value ratio and down payment minimums
2. Renegotiate with the seller for a lower home sale price – your realtor can help you with this
3. Request an appraisal rebuttal – contact your lender
4. Seller and buyer cancel the home purchase contract

Some recommendations when waiving appraisal contingencies

• Work with a knowledgeable and local agent that has a good understanding of the current and future market conditions. They will help you draft a strong offer that does not overreach your finances.
• If you can, have additional cash resources to cover these costs.
• You can negotiate to split the appraisal difference with the seller.
• Find out if the seller is willing to budge on other terms that matter, such as the close of escrow date, furniture, or renting back to the seller for free.
• In some cases, you may want to try to work with a different lender to get a second opinion on the home’s value.

Have an additional question? Drop us a line. We are here to help San Francisco home buyers and sellers make the right decisions on their own terms.