For example, a home is listed at $315K, a buyer offers $330K and that offer gets accepted. The Listing Agent, at some point during the process (preferably before the buyer's offer gets accepted) would have informed the Selling Agent that his buyer needs to fill out an addendum stating that they are waiving the appraisal contingency. Which just basically states that the sellers will receive no less than the agreed upon amount of $330K , regardless of what the appraisal comes back as. If the appraisal comes back and the home is "appraised" at $315K, then the buyer has to pay that extra $15K, out-of-pocket to accommodate the difference between the accepted offer price and the appraised value. The reason this can be high risk is because of the potential situation that a home appraises at a much lower value, for this example, we'll say something like around $275K. In that case, the buyer would be responsible for the $55K difference. There are certainly some workarounds, but it will usually come down to more money that your buyer will need to come up with to purchase the home and as a buyer's agent you are obligated to try and limit that as much as possible.
If you are very familiar with the value of the home and have a great idea of what it will appraise for, then you don't have much to worry about, this is where the due diligence comes into play. In the situation that I had, the home appraised at $350K, which was right around where I expected it to, so everything was fine and my client ended up with $20K in equity right when they moved in. But I can't stress how important it is that you know the surrounding areas and know your comps.
When representing a buyer I don't recommend removing the appraisal contingecy unless they a fully aware of the comps, in a multiple offer situation, have the funds to go above market value, and are fully aware if they remove it the seller will not come down price.
I'm not sure what you mean about the lender removing the appraisal contingency. There is a loan called Home path where it is not required.
An appraisal contingency waiver is one used by the buyer to let the seller know that they will take the property regardless of the value amount determined by the appraisal. This is a dangerous waiver unless the buyer is fully aware of the comparables in the area and the risk in removing this contingency.
Removing the appraisal contingency is not the only contingency - most contracts will also have loan and inspection contingencies as well, but what I have seen is that when the market heats up such as it is now, sellers will ask buyers to waive all contingencies in order to get the home.
Lenders will not waive an appraisal as their loan is primarily based upon the risk associated with the loan and the certified value of the property itself (high loan to value - high risk, low loan to value - low risk).
Contingency removal of any sort should be carefully analyzed and only done with the best of data associated with it. Good comparable values of recent sales for an appraisal, no concerns with qualifying for the loan and finally the acceptance of a home As-Is for any inspection contingency removal.
I hope this helps you out my friend.
The market is turning again, and we are seeing multiple offers. There are other ways to submit a strong offer without messing with the loan appraisal and loan approval contingencies.