What Is Appraisal Contingency? Complete Guide

One key character takes center stage in the delicate ballet of real estate transactions, where several elements meet to make a smooth deal the appraisal contingency. This term, which is frequently used in real estate circles, is critical in protecting both buyers and sellers by assuring a fair and transparent process.

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Defining the Appraisal Contingency

An appraisal contingency is a language added to a real estate contract that states that the deal’s completion is contingent on the property’s appraisal meeting or exceeding a specific value. In layman’s words, it acts as a safeguard for the buyer, giving them a ‘exit’ if the appraised value falls short of the agreed-upon purchase price.

The Process of Appraisal Contingency

The Process of Appraisal Contingency

Homebuyers will include a home appraisal contingency in their purchase agreement to protect themselves if the appraisal comes in lower than the purchase price. If the home is not assessed for the amount agreed upon, the buyer can walk out of the contract or renegotiate the price without losing their earnest money deposit, which is the deposit provided to the seller.

If you get a mortgage to buy a house, the lender will order an appraisal. That way, the lender knows that even if you foreclose, it can still reclaim all or most of the loan amount. In other words, the appraisal assists underwriters in determining the risk of providing you money to purchase a home.

An appraisal will be ordered by either you or the lender. If you are paying in cash, you will request an appraisal. When this occurs, a registered professional appraiser will examine the property and compare it to other homes that have previously sold in the area. For example, if a home is 2,000 square feet with three bedrooms and two bathrooms, the appraiser will look for properties of similar size.

The appraiser will utilize the information acquired to create a report that includes the appraised worth of the residence. This copy will be given to both the buyer and the lender. If the appraisal is less than the buyer expected and they have an appraisal contingency, the buyer can opt to negotiate with the seller or accept the evaluation.

Managing the Contingency Process

While assessment contingencies are strong tools, they must be used with care. Here’s a step-by-step strategy on dealing with this contingency:

  • Included with the Deal: The appraisal contingency is typically included in the first offer, stating the conditions under which the buyer may advance or withdraw from the transaction.
  • Appraisal Conduct: After the offer is accepted, an appraisal is performed by a licensed specialist. The appraiser determines the property’s worth based on a variety of variables, including recent sales in the neighborhood
  • Appraised Value Assessment: Once completed, the appraised value is communicated to both parties. The deal will proceed as expected if the appraisal matches or surpasses the agreed-upon purchase price.
  • Managing Gaps: Negotiations take place if there is a difference between the appraised value and the buying price. Buyers may request a price change, and sellers may accept or reject the request.
  • Decision Point: The buyer is faced with a choice point after receiving the evaluation results. If the parties are unable to reach an agreement, the buyer can activate the appraisal contingency, allowing them to terminate the sale without forfeiting their earnest money.

What should you do if the assessment of the Appraisal is lower than the offer?

If the home you wish to buy appraises for less than the purchase price, you have a few options. You can seek a second professional evaluation, renegotiate the purchase price, settle the difference with a greater down payment, or cancel the contract.

  • Obtaining another appraisal: If you are unsure whether the report is accurate, you can obtain another evaluation to either confirm or adjust the market value. Remember that the buyer will have to pay for another appraisal, which might cost several hundred dollars.
  • Putting down a higher deposit: If you can afford it, you can put down a larger deposit to cover the difference between the purchase price and the appraised worth of the home. As a result, the lender may still accept your loan and you may proceed with the home purchase.
  • Changing the buying price: When an assessment comes in too low, one of the most typical options is to renegotiate the appraisal. Buyers might utilize the report to negotiate a lower sale price, particularly if comparable houses have sold for less.
  • Negotiating Appraisal Concerns in Home Purchase: The assessment may potentially be poor due to the condition of the residence. In that instance, you might bargain about the appraisal with the seller and request that they undertake the necessary modifications or repairs to increase the home’s value. After the repairs or improvements are completed, you’ll need to get another appraisal.
  • Refusing to make the purchase: If the appraisal is too low, you can cancel the transaction right away. However, if you remain interested in the property.

When is it appropriate to forego an appraisal contingency?

What Is Appraisal Contingency? Complete Guide

If you’re buying in a hot market, you can think about dropping the appraisal contingency to make your offer more appealing to the seller. Remember that the appraisal contingency safeguards both you and your money. Waiving the evaluation contingency may be less dangerous in some instances.

Waiving the appraisal contingency is less likely to constitute a problem if:

  • You paid cash for the house.
  • You want to improve your buying offer in a seller’s market and have contingency plans in place.
  • You’re buying the house with seller financing.
  • You’re making a sizable down payment (more than 20%) on a house.

How long is an appraisal valid?

What Is Appraisal Contingency? Complete Guide

An appraisal for most conventional loans is good for 12 months before the home closes, according to Fannie Mae, though a report more than four months out will require an appraisal update. However, the length of time an appraisal is valid depends on the type of loan you have and the lender’s requirements. Appraisals for USDA loans, for example, are normally valid for up to 150 days, whereas appraisals for VA loans are typically good for up to six months.

Recent appraisals are generally more accurate. Contact your lender if you are unsure when your appraisal will expire.

Other sorts of property contingencies

Other contingencies are frequently included in a buying offer. These are some examples:

  • Mortgage or financing contingency: If a buyer is unable to obtain a mortgage or financing to purchase a home, they can back out of the purchase contract.
  • Title contingency: If a title company investigates the home’s title and finds liens or evidence that someone other than the seller has a claim to the property, the buyer has the option to drop out of the purchase.
  • Home inspection contingency: This clause states that the buyer has the right to cancel the transaction if the property has concealed flaws. These problems frequently necessitate extensive fixes.


Assume you agreed to purchase a home for $500,000, but an appraisal indicates that it is only worth $400,000. If your contract includes an appraisal contingency, you can renegotiate the price with the seller or back out of the sale.
An appraisal is often valid for several months, however the specific length depends on the type of house loan you have. An appraisal for a Fannie Mae loan, for example, is normally valid for up to 12 months, whereas a VA loan is valid for up to six months.
A home appraisal typically costs several hundred dollars
An appraisal gap is the price difference between the amount agreed upon by the buyer and the home's fair market value as established by a competent appraiser. In some situations, a high appraisal difference may necessitate the buyer paying more out of pocket to acquire a mortgage. If the buyer has an appraisal contingency, they will have the opportunity to negotiate a lesser price for the home or back out of the deal.
Appraisal Contingency is critical for buyers because it protects them from overpaying for a home. If the appraised value is less than the agreed-upon purchase price, the contingency permits purchasers to renegotiate conditions or, in extreme situations, cancel the transaction.
The appraisal process comprises a licensed appraiser determining the worth of a property based on characteristics such as size, condition, location, and comparable sales in the area.
The buyer is usually responsible for the appraisal fee. In some situations, however, sellers may agree to cover the cost as part of the discussions.
If the appraised value is less than the purchase price, the buyer can utilize the contingency to renegotiate the price with the seller, request a price reduction, or, in extreme situations, withdraw from the transaction without financial consequences.
Yes, buyers can waive the appraisal contingency, but this comes with dangers. Waiving the contingency means agreeing to the purchase even if the appraised value is lower, which could result in financial difficulties.

The presence of an appraisal contingency gives buyers bargaining power. If the appraisal comes in lower than the purchase price, buyers might renegotiate the terms.

What Is Appraisal Contingency? Complete Guide

Azhar Rasheed

Azhar Rasheed is a Web Designer and Content Writer with a distinguished career spanning over 1.5 years.

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