Don’t Pay More than the House is Worth!
Real estate contracts often have contingencies – a contingency defines a condition or action that must be met in order for a real estate contract to become binding. These must be fulfilled in order for a contract to continue and go to closing. Contracts will often have a financing contingency, where the buyer is given the chance to apply and be approved for a loan. If the buyer is unable to secure financing, the financing contingency lets the buyer out of the contract. Without such contingency, the buyer would be forced to buy, even if he could not get a loan.
Another very important contingency is an appraisal contingency. The Georgia Association of Realtors “Purchase and Sale Agreement” does not have appraisal contingency wording. This contingency appears in the different Georgia Association of Realtors loan exhibits that can be attached to the contract according to which loan the buyer will be using to purchase (“VA Loan Exhibit,” “FHA Loan Exhibit,” “Conventional Loan Exhibit,” etc…. The standard language in all these exhibits makes the seller lower the price of the house to appraised value if the appraisal comes in lower than the sales price in the contract, or lets the buyer out of the contract. Mortgage providers will not be on the hook for more money than a house is worth. If the realtor does not take care of it for the buyer (does not insure that there is an appraisal contingency somewhere in the contract), the bank will protect itself by adding an appraisal contingency to the contract.
Therefore, if you are buying cash in Georgia (and will, hence, not need a loan exhibit) and are getting an appraisal (which you don’t necessarily need for a cash sale) be sure your Realtor adds an appraisal contingency to the contract. If you don’t and the appraisal comes in lower than purchase price, you may have to pay too much for the house, regardless of what the appraisal says.