Professionals Real Estate 
What is Appraisal Contingency?
An appraisal contingency is a clause within a real estate contract that allows the buyer to ensure a property is valued at a minimum specified amount. If the home does not appraise for at least the specified amount, the contingency allows the buyer to back out of the contract without penalty.
Typically, this clause will be included in the purchase agreement and is part of the negotiation process between the buyer and seller. It is a common practice which is highly recommended, especially in heated real estate markets.
Why Do Buyers Need Appraisal Contingency?
- Protects Your Deposit: An appraisal contingency ensures that if the deal falls through due to the home’s value not measuring up, you can recover this deposit.
- Mortgage Considerations: If the appraised value comes in below the purchase price, the lender may deny financing unless you make up the difference in cash. With an appraisal contingency, you have an escape route if the numbers don’t line up.
- Negotiation Leverage: If an appraisal comes in low, the appraisal contingency can serve as a tool for renegotiating the purchase price.
- Market Fluctuations: Especially in volatile markets, prices can swing dramatically. An appraisal contingency protects a buyer from overpaying for a property that may not retain its inflated value in the future.
Best Practices in Utilising Appraisal Contingency
- Timely Clauses: Timing is everything. Ensure the appraisal contingency provides enough time for the appraisal to be conducted and for any negotiations that might follow.
- Clear Terms: The contingency should clearly define the minimum acceptable appraised value and outline what happens if the appraisal falls short.
- Professional Guidance: Always consult with a real estate professional or attorney who understands the ins and outs of local real estate contracts to help guide you through the process.
