What Is An Appraisal Contingency?

An appraisal contingency is a clause in a real estate purchase contract that protects the buyer by ensuring that the property is worth the agreed-upon purchase price. Essentially, it allows the buyer to back out of the sale or renegotiate the price if the appraised value of the property comes in lower than the agreed-upon purchase price. Here's how it works: When a buyer makes an offer on a property, they will typically include an appraisal contingency in their purchase contract. The contract will specify a timeframe within which the appraisal must be completed and the results provided to the buyer. Once the appraisal is complete, if the appraised value of the property is lower than the agreed-upon purchase price, the buyer has a few options. They can choose to:

• Walk away from the sale and receive their earnest money deposit back

• Renegotiate the purchase price with the seller to reflect the appraised value

• Proceed with the sale as-is, even if the appraised value is lower than the purchase price (although this is less common)

By including an appraisal contingency in the purchase contract, the buyer can avoid overpaying for a property and ensure that they are making a sound investment.