What Is an Appraisal Contingency?

An appraisal contingency protects the buyer if the home’s appraised value comes in lower than the agreed-upon purchase price. Most mortgage lenders require an independent appraisal to confirm that the home is worth what they are lending.

If the appraisal is lower than expected and you have an appraisal contingency in place, you are not required to move forward at the original price. This gives you the opportunity to renegotiate or walk away from the deal without penalty.

Other Common Home Purchase Contingencies

In addition to an appraisal contingency, buyers often include:

Financing Contingency
This allows you to cancel the contract if your mortgage loan is not approved. Even with preapproval, final loan approval depends on underwriting and property conditions. This contingency protects you if financing falls through.

Home Inspection Contingency
A home inspection contingency gives you time to have the property professionally inspected. If significant issues are discovered, you can request repairs, negotiate the price, or exit the contract.

What Happens If a Home Appraises Below the Purchase Price?

If a home appraises for less than the agreed price, lenders typically base the loan on the lower value. At that point, buyers usually have three options:

• Pay the difference out of pocket with a larger down payment

• Renegotiate the price with the seller

• Walk away using the appraisal contingency

In many cases, sellers may be willing to lower the price rather than lose the sale entirely.

When Might You Waive an Appraisal Contingency?

In competitive markets, some buyers choose to waive the appraisal contingency to make their offer more appealing. While this can help secure a home, it also increases financial risk. Buyers should only consider this strategy if they are confident they can cover a potential appraisal gap.

Final Thoughts

An appraisal contingency can be a powerful tool that protects buyers from overpaying for a home. Understanding how it works—and when it makes sense to include or waive it—can help you make more confident and informed decisions throughout the home buying process.