I want to talk to you today about a very important issue that’s going on right now. I see a lot of this out there in the marketplace with my agents and with the agents that they do deals with, and it has to do with appraisals.

Now, a few months ago, I released a video that talked about the dangers of inserting appraisal language into special provisions and the do’s and don’ts of doing that. However, this is a little bit different issue because, for some reason, I see a lot of poor understanding of exactly how appraisal protection is afforded with today’s contracts.

Now, a couple of years ago and prior to that, the language that protected the buyer in case of a low appraisal or property approval in general from a lender was in the contract, in the 1-4 Family Contract, in paragraph four.

As of January 1, 2016, TREC made mandatory the new contracts where that language was moved from paragraph four of the 1-4 Family Contract into the Third Party Financing Addendum. So what you have to be careful of, whether you’re representing the buyer or whether you’re representing the seller. You have to be careful of the nuances now with this not-so-new movement of that being in that Third Party Financing Addendum, and here’s what I mean.

As a buyer’s agent, if you’re in a multiple-offer situation and your clients are very well-qualified, they’re super qualified and they don’t really need the buyer protection that that Third Party Financing Addendum. And you want to make your offer as attractive as possible. You might be tempted to tell them to, “Okay, let’s not even make the contract contingent upon Third Party Financing.” However, what you need to also realize is that the appraisal protection is completely separate from the timeline that is involved in the Third Party Financing Addendum.

What that means is, number one, even if the contract is not subject to the Third Party Financing Addendum protection for the buyer’s approval by the lender. The contract is still subject to the property approval because they’re in separate paragraphs.

The appraisal language is on page two in paragraph B of the Third Party Financing Addendum. And it’s completely independent of the buyer approval protection. So, as a listing agent, that becomes very important because even if that buyer is out of their 15, 20, 25, or 30-day protection period, from a buyer approval perspective, if that appraisal comes in low, they can out and get their earnest money back at any point. So you need to be very clear about that.

Number one, if you don’t include a Third Party Financing Addendum with your offer, that buyer is not protected from a low appraisal.

Number two, if you do include it, remember that it’s completely independent of that buyer approval language and those terms that you put in that Third Party Financing Addendum.