A Homebuyer’s Essential: The Appraisal Clause in a Real Estate Contract in New York.

So, you are buying a house in the suburbs of New York City and you want to rely upon the Mortgage Contingency to protect your hard earned down payment. But, what if the bank offers you a smaller mortgage than you applied for because the appraisal came in low? Did your attorney protect you with an “Appraisal Clause?”

Every homebuyer wants to get a good deal, but how can you prevent overpaying for your new property? And why is it so important? The key to making sure the price is right is to make sure you have an appraisal and that your sales contract includes an appraisal clause.

An appraisal is a detailed report, created by an independent professional, to establish the value of the home you are buying. The value is what other buyers would pay in a competitive market. Most appraisers will compare the home you want to other homes in the neighborhood that recently sold. The appraiser will make adjustments for the unique features of your home.

For example, your home might be worth more if it has an extra bedroom compared to another home on the same street. Some appraisers will consider how much it would cost to build the same home in the same location. You want your house to appraise for the offering price or more. This is because you want to avoid borrowing more than your house is worth.

Most banks will not extend the mortgage to a buyer if the house does not “appraise” for the purchase price. This could mean one of two things. First, you might have to come up with extra cash to close the deal, or, second, you might jeopardize your down payment if the bank issues you a commitment for less than your mortgage contingency.

An appraisal “clause” in a real estate closing contract can help solve this problems because it allows you to cancel the contract if the house fails to appraise for the amount you offered. In other words, if you offered more than the home’s appraised value, the clause lets you walk away before losing money, regardless of whether the bank will give you a mortgage.

The bottom line– hire an attorney who will fight for your protection.