Appraisal contingency.
In plain English
An appraisal contingency is a clause in your purchase contract that protects you when the home's appraised value comes in below the price you agreed to pay. Because your lender will only finance the lower appraised amount, the gap becomes cash you would otherwise owe. This clause gives you the right to renegotiate the price, ask the seller to meet you partway, or cancel the deal and recover your earnest money deposit. It is the contract tool that turns an appraisal gap from a trap into a decision you control.
01Why it matters
Waiving this clause to win a bidding war can leave you owing thousands in unplanned cash if the appraisal falls short, or losing your deposit if you try to walk.
02The math, step by step
You offer $420,000 and the appraisal comes back at $400,000, a $20,000 gap your lender will not finance. Because you kept the appraisal contingency, you ask the seller to drop the price to $405,000. They counter at $410,000. You decide the extra cash is too much and cancel within your contingency window, recovering your $9,000 earnest money deposit.
03What this is NOT
An appraisal contingency protects you specifically when the home's value comes in low. A financing contingency protects you when the loan itself is denied for any reason. They overlap but cover different failures, and a strong contract often includes both.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice