If the property fails to appraise for at least the contract price, the appraisal contingency in the contract gives the buyer 5 days to cancel the contract or decide to move forward and pay the difference between the appraised value and contract price as an additional down payment at closing.
During those 5 days, it is common for the buyer and seller to try to renegotiate the contract to terms that both are happy with or to try and challenge the appraised value. Keep in mind that when we do this we are working outside of the contract, so we need to make sure that if changing terms, we have an addendum signed by both buyer and seller within the 5-day contingency window. If challenging the appraisal, it’s a good idea to execute an addendum extending the appraisal contingency to accommodate for the time needed for the lender to submit and appraiser to review the dispute. If the Buyer does not cancel the contract within the five days, then they are obligated to move forward with the purchase and make up the difference which is why it is important to extend this timeframe if needed.
If the buyer and seller cannot come to terms or the buyer wishes to proceed with closing without any adjustments, the Appraisal Contingency Notice can be used. There are two choices on this document. The buyer can check the box to cancel or the other box says they have received the appraisal and wish to continue with the contract. By checking the 2nd box they waive their right to cancel and acknowledge that the appraisal contingency shall be waived and if the buyer cannot obtain the loan the buyer will be in breach of the contract and after the expiration of the cure period the seller shall retain the earnest money.