When buying a home, the process can be complex and overwhelming. One of the most critical components of a home purchase contract is the appraisal contingency. In this blog, we’ll explore what an appraisal contingency is, how it works, and why it’s essential to understand its implications.

What is an Appraisal Contingency?

An appraisal contingency is a clause in a home purchase contract that allows the buyer to terminate the contract if the appraised value of the property is lower than the agreed-upon purchase price. This contingency is typically included to protect the buyer from overpaying for the property.

How Does an Appraisal Contingency Work?

Here’s how an appraisal contingency typically works:

  1. The buyer and seller agree on a purchase price for the property.
  2. The buyer commissions an appraiser to determine the value of the property.
  3. The appraiser provides a report detailing the property’s value.
  4. If the appraised value is lower than the agreed-upon purchase price, the buyer can terminate the contract or renegotiate the price with the seller.
  5. If the buyer chooses to terminate the contract, they typically receive a refund of their earnest money deposit.

Benefits of an Appraisal Contingency

Including an appraisal contingency in a home purchase contract provides several benefits to the buyer:

  • Protects against overpaying for the property
  • Gives the buyer flexibility to renegotiate the price or walk away from the deal if the appraised value is lower than expected
  • Provides an opportunity for the buyer to re-evaluate their decision to purchase the property

New Ideas and Advice

Here are some new ideas and advice on how to navigate an appraisal contingency:

  • Consider hiring an appraiser who is familiar with the local market to ensure a more accurate appraisal.
  • Negotiate the terms of the appraisal contingency with the seller to ensure that you have sufficient time to review the appraisal report and make a decision.
  • Be prepared for the possibility that the appraised value may be lower than expected, and have a plan in place for how you will proceed.
  • Consider hiring a real estate agent who has experience with appraisal contingencies to help guide you through the process.


An appraisal contingency is a critical component of a home purchase contract. By understanding how it works and its implications, buyers can protect themselves from overpaying for a property and ensure a smooth transaction. Whether you’re a seasoned buyer or a first-time homebuyer, it’s essential to understand the appraisal contingency and how it can impact your purchase.