⚡ Quick Answer: What is an Appraisal Contingency?
An appraisal contingency is a clause in your purchase contract that protects you if the home appraises for LESS than your offer price. It gives you 3 options: (1) walk away and get your earnest money back, (2) renegotiate a lower price, or (3) pay the difference in cash. Without this clause, you could lose $5K-$50K in earnest money if the deal falls through.
💰 Real Example (2026):
Scenario: You offer $450,000 on a home with $10,000 earnest money deposit
- • Appraisal comes back at $430,000 (appraisal gap = $20,000)
- • WITH contingency: You can walk away, get $10K back, OR renegotiate to $430K
- • WITHOUT contingency: You must close at $450K or lose $10K earnest money
2026 Reality: In cooling markets, appraisals coming in low are common. Protect yourself! Get pre-approved and include appraisal contingency in your offer!
🛡️ How Appraisal Contingency Works (Step-by-Step)
Understanding the appraisal contingency process is critical to protecting your earnest money. Here's exactly how it works from offer to closing:
📋 Appraisal Contingency Timeline (2026):
Make Offer with Appraisal Contingency (Day 0)
When submitting your offer, include an appraisal contingency clause in the purchase agreement. This clause states: "Buyer's obligation to purchase is contingent upon the property appraising at or above the purchase price."
Example clause:
"This contract is contingent upon the property appraising for at least $450,000. If appraisal is less, Buyer may: (a) terminate and receive earnest money refund, (b) renegotiate price, or (c) proceed with additional cash."
Offer Accepted, Deposit Earnest Money (Days 1-3)
Seller accepts your offer. You deposit earnest money (typically 1-3% of purchase price = $5K-$15K) into escrow. This money is held by title company and protected by your contingencies.
Example:
$450K home → $10K earnest money (2.2%) deposited into escrow
Order Appraisal (Days 3-7)
Your lender orders an appraisal from a licensed appraiser. You pay the appraisal fee upfront ($400-$600). Appraiser schedules visit to property.
⚠️ Appraisal fee is NON-REFUNDABLE even if deal falls through.
Appraisal Completed (Days 7-14)
Appraiser visits property, measures square footage, compares to recent sales (comps), and determines fair market value. Report sent to lender.
3 Possible Outcomes:
- • At or above offer: $450K+ → Deal proceeds normally
- • Slightly below: $440K-$449K → Negotiate or pay gap
- • Significantly below: $430K or less → Major problem
Receive Appraisal Report (Day 14)
Lender shares appraisal report with you. You have a specified number of days (typically 5-10 days) to decide your next move based on contingency deadline.
Exercise Your Options (Days 14-24)
If appraisal is low, you have 3 options protected by your contingency:
Your 3 Options:
Option A: Walk Away
Terminate contract, get full earnest money refund ($10K back)
Option B: Renegotiate Price
Ask seller to lower price to appraised value ($450K → $430K)
Option C: Pay the Gap
Bring extra $20K cash to closing (if you have it and want the home)
Key Protection: The appraisal contingency gives you legal right to exit the contract if appraisal is low, protecting your earnest money. Compare lenders and get pre-approved with contingency protection!
🔍 What Happens If Appraisal Comes in Low?
Low appraisals are becoming more common in 2026 as markets cool. Here's exactly what happens and your negotiation strategies:
🚨 The Appraisal Gap Problem:
Appraisal Gap = Difference between your offer price and appraised value. Lenders will only loan based on the LOWER of the two values.
Real Example:
• Your offer: $450,000
• Appraisal: $430,000
• Appraisal gap: $20,000
Lender's calculation:
• Loan amount (80% LTV): $430,000 × 80% = $344,000
• Down payment needed: $450,000 - $344,000 = $106,000
(You planned for 20% down = $90K, but now need $106K = extra $16K cash!)
💡 Your 3 Options (Detailed):
1️⃣Walk Away (Get Earnest Money Back)
Best if: You don't have extra cash for the gap, or you believe the home is overpriced.
How to do it:
- • Notify seller in writing within contingency deadline (5-10 days)
- • Reference appraisal contingency clause in contract
- • Request earnest money refund from escrow
- • Receive full refund within 3-5 business days
Pros: Get money back, avoid overpaying. Cons: Lose time/effort, must restart home search.
2️⃣Renegotiate Price to Appraised Value
Best if: You still want the home but don't want to overpay. Seller is motivated.
Negotiation script:
"The appraisal came in at $430,000. My lender will only loan based on this value. I'd like to proceed, but I need you to lower the price to $430,000. Otherwise, I'll have to exercise my appraisal contingency and walk away."
Seller's likely responses:
- • Accept: Price drops to $430K, deal proceeds
- • Counter: "Meet me halfway at $440K" (you pay $10K gap)
- • Refuse: "Price stays at $450K or deal is off"
Pros: Save $20K, avoid overpaying. Cons: Seller might refuse, deal could fall through.
3️⃣Pay the Appraisal Gap in Cash
Best if: You REALLY want the home, have extra cash, and believe it's worth the price long-term.
What you need:
- • Original down payment: $90,000 (20% of $450K)
- • Extra cash for gap: $16,000 (to cover lender shortfall)
- • Total cash needed: $106,000
You're essentially paying 23.6% down instead of 20% to make up for the low appraisal.
Pros: Get the home you want. Cons: Overpay by $20K, tie up more cash.
2026 Strategy: In cooling markets, sellers are more willing to negotiate. Start with Option 2 (renegotiate), and be prepared to walk (Option 1) if they refuse. Get pre-approved and protect yourself with contingencies!
⚠️ When to Waive Appraisal Contingency (Risky!)
In hot markets, sellers sometimes demand buyers waive the appraisal contingency to make offers more competitive. Here's when it makes sense and when to NEVER do it:
✅ Consider Waiving IF:
- ✓You have 20%+ cash reserves:
Can cover $20K-$50K gap if appraisal is low
- ✓Extremely hot market:
Multiple offers, homes selling above asking, bidding wars
- ✓Recent comps support price:
Similar homes sold for same/higher price in last 3 months
- ✓Dream home, long-term hold:
Plan to stay 10+ years, short-term overpayment doesn't matter
❌ NEVER Waive IF:
- ✗Tight budget, minimal savings:
Can't afford $10K-$50K surprise gap
- ✗Cooling/balanced market:
Homes sitting on market, sellers negotiating
- ✗Home priced above comps:
Asking price 10%+ higher than recent sales
- ✗First-time buyer, uncertain:
Need maximum protection, can't afford risks
🚨 2026 Warning:
With markets cooling in 2026, waiving appraisal contingency is MUCH RISKIER than in 2021-2022. Low appraisals are common. Unless you have significant cash reserves and are in a bidding war, KEEP your appraisal contingency. Protecting $10K-$50K earnest money is worth potentially losing the home. Compare lenders and get expert advice before waiving!
❓ Appraisal Contingency FAQ (2026)
How long do I have to exercise my appraisal contingency?
Typically 5-10 days after receiving the appraisal report. The exact deadline is specified in your purchase contract. If you don't act within this window, the contingency expires and you lose protection.
Can I challenge a low appraisal?
YES. You can request a "reconsideration of value" if you find errors (wrong square footage, missed upgrades, bad comps). Provide evidence to lender. Success rate is low (~10-20%), but worth trying if appraisal seems obviously wrong.
What if seller refuses to lower price?
You have 2 options: (1) Pay the appraisal gap in cash if you have it, or (2) Exercise your contingency, walk away, and get earnest money back. Don't let seller pressure you into losing your protection.
Do I get my appraisal fee back if I walk away?
NO. The appraisal fee ($400-$600) is non-refundable. You paid for the appraiser's service, which was completed. However, you DO get your earnest money back ($5K-$50K) if you have an appraisal contingency. Get pre-approved and understand all costs upfront!
Can I use the same appraisal with a different lender?
Sometimes. If you switch lenders, the new lender might accept the existing appraisal if it's recent (less than 120 days old) and meets their standards. This can save you $400-$600. Ask your new lender before ordering a second appraisal.
🛡️ Ready to Protect Your Earnest Money?
Don't risk losing $10K-$50K in earnest money! Include an appraisal contingency in your offer and protect yourself if the home appraises low. Get pre-approved and make a smart, protected offer today!