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GLOSSARY — REAL ESTATE TERMS

Appraisal Contingency

An appraisal contingency protects a buyer if a lender's independent appraisal values the property below the agreed purchase price, giving the buyer the option to renegotiate, cover the gap, or cancel the contract.

What happens when an appraisal comes in low

Lenders will only finance up to a home's appraised value, not necessarily the agreed purchase price. If the appraisal comes in below the purchase price, the buyer typically has three options: renegotiate the price with the seller, pay the difference (the appraisal gap) in cash, or cancel the contract under the appraisal contingency and recover their deposit.

Appraisal gaps in competitive markets

In competitive bidding situations, some buyers waive the appraisal contingency or agree in advance to cover a certain gap amount to make their offer more attractive. This increases the buyer's financial exposure if the appraisal comes in significantly below the offer price.

What an appraisal gap looks like in dollars

If a buyer offers $950,000 on a home that appraises at $920,000, that's a $30,000 gap. Under a waived or partially waived appraisal contingency, the buyer would need to cover that gap in cash beyond their planned down payment to keep the deal at the original price.

WHAT TO DO BEFORE THE APPRAISAL COMES BACK
  • Review recent comparable sales with your agent before making your offer
  • Decide your appraisal gap coverage limit before you're mid-negotiation
  • Request a copy of the appraisal report as soon as it's issued
  • Know your options — renegotiate, cover the gap, or cancel — in advance
RELATED TERMS
Loan ContingencyComparative Market AnalysisContingency PeriodClosing Cost Credit
Can I waive the appraisal contingency to be more competitive?
Yes, and it's common in strong seller's markets, but it removes your protection if the appraisal comes in low -- you'd need to cover the gap in cash or risk losing your deposit.
Who pays for the appraisal?
The buyer typically pays for the lender's appraisal as part of loan-related closing costs, regardless of the outcome.
Does a low appraisal mean the home is overpriced?
Not necessarily -- appraisals can lag fast-moving markets or reflect a more conservative view of comparable sales than the actual competitive bidding that produced the offer price.