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hi everybody dana sparks broker of maximum on greater atlanta realtors and today's contract tip has to do with the financing contingency and the appraisal contingency and just a little bit of a basic discussion about those two and the differences between those two so let's just dive in shall we uh first of all just even though a buyer's financing and appraisal are related if a buyer is getting a loan per the contract the appraisal contingency and the financing contingency are two completely separate contingencies in essence just a general global way of thinking about this is the financing contingency is the lender's assessment of how much they think or how confident they are that the buyer is going to pay the lender back for the money they loan out so that has to do with the buyer him or herself their credit uh score their history of paying back loans how much outstanding debt they have their debt to income ratio how much money they have in the bank or in reserve so forth and so on so a financing contingency is a lender's risk assessment of the person paying them back the appraisal contingency is in essence a risk assessment of the property that they are lending the money on the collateral for which they will get back if the buyer does not pay them back in other words is the property in and of itself going to uh get enough money on the market should they have to sell it to cover the money that they lent out to the borrower who never paid them back so again the financing contingency has to do with the person the borrower the appraisal contingency has to do with the property it's an assessment of the property versus and the financing is an assessment of the person two completely separate issues and the reason i am discussing this is that um we have been seeing for whatever reason a lot of contracts coming across and uh in the discussions between the agents the buyer's agent is saying uh we need to extend the financing contingency because the appraisal hasn't been done yet well there are two completely separate things you have you don't need to a seller does not need to extend agree to an extension of a financing contingency because of an appraisal that has a buyer cannot terminate based on a financing contingency protection if the property does not appraise likewise a buyer cannot terminate on protect their earnest money under an appraisal contingency protection if the lender is not going to lend them the money they're two completely separate contingencies and you don't have to have one without the other now a lender more than likely is going to require an appraisal but a buyer doesn't necessarily have to make their property contingent upon the property appraising for sale price as a matter of fact in this competitive market we're seeing a lot of buyers willing to pay cash over the appraisal so the appraisal contingency really is of uh no consequence to the contract so why does this get confusing well um it gets confusing because in the gar contract package gar has the appraisal contingency and the financing contingency contained on one form on the loan contingency exhibits even though they are two completely separate issues or contingencies um so in the um in the gar form for example on the guard georgia association realtors conventional loan contingency exhibit which is f404 the financing contingency time frame is filled in on paragraph five and then the appraisal contingency time frame is filled in on paragraph 11. now in the well let me stick with gar for a minute again gar for whatever reason has put both of these two completely separate contractual contingencies on one form but they are different um in the fha loan exhibit in gar which is f407 the financing the buyer's financing contingency time frame is negotiated in paragraph five but in an fha loan and in a va loan there is no fill in the blank for a time frame for an appraisal contingency so in the fha loan exhibit under gar is f407 and for the va which is f uh it is the gar form f410 same thing the financing contingency time frame is paragraph five and in both of those the appraisal contingency in essence is paragraph 11 which is the a mandatory clause paragraph and you'll notice there is no time frame in there a buyer who is getting an fha insured loan or a va insured loan their earnest money is a pr is protected should the property not appraise through day of closing through the entire time frame of the contract because there is no date now in the re forms the appraisal contingency i'm sorry the uh that is true for fha that is uh true for va and fha that is true regardless of the parties you're finding using a georgia association realtors contract or an reforms contract but if the buyer and seller go binding under the re forms the contingency time frames are actually filled out in the actual purchase and sale agreement which is re100 and it is under paragraph six which is where all the contingencies are paragraph 6.2 is the appraisal contingency time frame and paragraph 6.3 is the financing contingency time frame so buyer and seller negotiate days from binding agreement date uh for a financing contingency that the seller gives the buyer so many days from binding agreement date to convince a lender to lend them the money that they are worthy of the loan and they do have the means and can prove uh that they will pay that loan back if they can't do that then they have to terminate the contract with proof from the lender try and send notice of that proof prior to that time frame um and for the appraisal contingency that means uh the appraiser must go out appraise the property and make an assessment and do a report that the property is uh going to be enough collateral for the money the lender is lending out should they get it back and have to sell it and recoup their money that way rather than the borrower paying them back if it goes under foreclosure um so again i just wanted to let you guys know a couple things number one they are two completely separate contingencies even though uh contractually they are located in the on the same form in gar additionally do not let uh don't leave that blank you should never leave any blanks in a contract you should put zero or not applicable zero days from finding agreement date or not applicable if it is left blank then just like uh the appraisal contingency on fha or va if it is left blank then that buyer's contingency would go throughout the entire term of the contract in other words through day of closing and basically what it says in the gar uh form for example on the conventional uh loan contingency loan exhibit it says buyers shall have blank number of days from the binding agreement date to determine if the buyer has the ability to obtain the loan described above and then it goes on and on and on so if that and we're seeing anywhere from 14 days 21 days 28 days it depends on the negotiations between the buyer and the seller the property type the lender how far along in the process that buyer is before writing the offer so forth and so on but if that is left blank then it would read buyers shall have from the binding agreement date to determine if there's no time frame it just the time frame goes it is a contingency with the contract so it would go the entire length of the contract meaning through the last day of closing uh one other point so don't if you're if you're a buyer's agent i still would not leave i don't i can't encourage anybody to leave any blanks um but if you're a listing agent and you get a loan buy an offer with a loan contingency and that time frame is left blank the seller's probably gonna want to make a counteroffer back putting in a certain number of days uh to limit the buyer's time frame to find out if they are going to get their loan from a lender or not look how cute this baby is if um the other thing i want to bring to your attention is we there has been also some confusion on an extension of a closing date if a buyer and a seller agree to extend a closing date then a financing contingency or any other contingency is not automatically extended well i take that back there are only two contingencies that would be extended with the extension of a closing date and that would be the appraisal contingency on an fha insured loan and an appraisal contingency on a va insured loan but all other contingencies are not automatically extended with a signed agreed upon extension of a closing date between the buyer and the seller financing contingency it doesn't get extended sale or lease contingency doesn't get extended or any other contingency that the parties agree on in the contract do not automatically get extended with an extension of a closing date so i hope this contract tip helped clarify a little bit of some confusion between financing and appraisal contingencies again they are two completely separate contingencies and for example um if a buyer says i need to extend my uh financing contingency because the appraisal hasn't been done well no you would just extend the appraisal contingency if the seller agrees there's no need to extend the financing contingency because if the appraisal comes in lower than the contract sale price a buyer can't terminate based on a financing contingency timeframe and get them protect their earnest money based on an appraisal issue those are again two completely separate assessments of the parts of the contract by the lender hope this contract have helped you out dana sparks broker of maximum one grader atlanta realtors satisfying your needs with service innovation and education hey hey sima you