What is an Appraisal Contingency When Buying a Home?

If you’re buying a home with a mortgage, you probably heard your agent say the words: appraisal contingency.

What does this even mean? Why does it matter?

Well it is an important contingency that protects you from overpaying. It is one of the small details in your offer that can save you a lot of money.

Let’s go over how it works, when people choose to waive it, and what it looks like.

What an Appraisal Contingency Actually Means

An appraisal contingency is a clause in your purchase agreement that ties the deal to the home’s appraised value.

Here’s how it usually goes:

• Your lender orders an appraisal after your offer is accepted.
• You’re good to go if the appraised value meets or beats your offer price.
• If it’s lower, you have a few options: negotiate the price down, pay the gap, or walk away.

This contingency is there to make sure you’re not locked into buying a home for more than it’s worth.

If you want a deeper look at how appraisals work in Washington, check out our guide on how to get a home appraisal in Washington State.

A Quick Appraisal Contingency Example

Let’s say you offer $600,000 for a home but it appraises at $580,000.

There's a $20,000 difference, right?

This difference is called an appraisal gap. It is the space between the appraised value and your agreed purchase price.

You have options when there’s an appraisal gap.

You can:

• Ask the seller to lower the price to $580,000.
• Pay the $20,000 difference in cash because your lender will only base the loan on the $580,000 value
• Or you can cancel the deal and get your earnest money back if you have an appraisal contingency.

If the appraisal comes in higher than your offer, you’re in a great position. You move forward with the purchase at the agreed price, but you’ve already gained equity since the home is valued above what you’re paying.

This is why having an appraisal contingency matter. It protects you when the numbers don’t match and gives you room to decide how to handle an appraisal gap.

What is the Difference Between Appraisal Guarantee and Appraisal Addendum?

You probably also came across the words appraisal guarantee and appraisal addendum during your house hunting and wondered what their difference are.

They do sound similar but they mean different things.

The appraisal guarantee is your promise to move forward with the purchase even if the home appraises for less than your offer.

The appraisal addendum is the document that puts that promise in writing. It spells out the details like how much appraisal gap you will pay in cash and what happens if the gap ends up being larger than expected.

Here a quick look on how they differ:

Keep in mind that having both can make your offer stronger and easier for the seller to trust.

It’s smart to go over the fine print with your agent before committing so you know exactly what you are saying yes to.

What About The Difference Between Appraisal Contingency and Financing Contingency?

These two contingencies often appear side by side and it sometimes gets confusing since financing contingency is also called a financial contingency or loan contingency.

Noticed homebuying comes with a lot of paperwork and terminology that can sound repetitive?

These two basically protect your investment but they cover different parts of the homebuying process.

Knowing the difference helps you know what each one does and how they can work together to keep your money safe if things don’t go as planned.

An appraisal contingency protects you based on the home’s value and a financing contingency (or financial contingency) protects you based on your loan approval.

Most buyers use both especially when financing their home through a lender.

So Before You Make an Offer

An appraisal contingency helps you make a confident offer without taking unnecessary risks.

It confirms that the value of the home aligns with your offer and keeps your finances protected.

Some buyers waive these contingencies to stand out especially in a hot market but it’s always worth knowing the tradeoffs first.

Knowing how things all work together helps you make smarter and safer decisions.

Homebuyers' FAQs About Appraisal Contingencies

Is an appraisal contingency negotiable?

Yes.

You can negotiate the terms of an appraisal contingency just like any other part of your offer. Some buyers agree to limit how much of a shortfall they’ll cover in cash, while others remove the contingency entirely to make their offer stronger in a competitive market.

What Happens If There’s No Appraisal Contingency?

Buying with no appraisal contingency means you are accepting the risk that the home may appraise for less than your offer.

If this happens, you’re on the hook to pay the difference in cash if you still want the house.

Some buyers skip the contingency in hot markets to make their offers stand out. But that only makes sense if you have the extra cash and are comfortable taking on that risk.

Do low appraisals mean a bad deal?

Not necessarily.

A low appraisal doesn’t always mean the home is overpriced or that you’re overpaying. Appraisers use recent comparable sales, and if the market is moving quickly, their data might lag behind. A low appraisal can be a chance to renegotiate the price or review your offer strategy with your agent.

What is a red flag on an appraisal?

A red flag is anything that could affect the home’s value or safety.

Common examples include foundation issues, water damage, outdated electrical systems, or missing permits for major work. These can lower the appraised value or delay loan approval until repairs are made.

Is it normal to have an appraisal contingency?

Yes.It is actually very common especially for buyers who are using financing. It protects you if the property appraises for less than your offer, giving you an option to back out or renegotiate without losing your earnest money.

Can a buyer walk away if the appraisal is lower than the offer?

Yes, if you have an appraisal contingency.

You can cancel the contract and get your earnest money back if the seller won’t adjust the price or you decide not to cover the gap. Without that contingency, you risk losing your deposit if you walk away.

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