Quick Answer
Your lender only lends against what the home is actually worth, so if the appraisal comes back lower than your offer, you're facing an appraisal gap. An appraisal contingency gives you options at that point: ask the seller to lower the price, cover part of the gap in cash yourself, or cancel and get your earnest money back.
- What it protects against
- Buying above appraised value with no options
- Common in
- Fast-rising or competitive markets
- Buyer's options
- Renegotiate, pay the gap, or cancel
- Often paired with
- A financing contingency
Why This Matters in a Rising Market
When offers are climbing quickly, the contract price can outpace recent comparable sales, which is exactly what an appraiser relies on. An appraisal contingency keeps a buyer from being locked into a price the lender won't fully finance.
Some buyers waive this contingency to compete for a home, but doing so means committing to cover any gap between the appraised value and the price out of pocket, or risk losing their earnest money.
What Happens With a Low Appraisal
First, your agent will often request a reconsideration of value if there's evidence the appraiser missed relevant comps. If that doesn't move the number, the appraisal contingency lets you go back to the seller to renegotiate.
Sellers aren't required to lower their price, so the outcome often comes down to negotiation, how much cash the buyer can bring, or ultimately whether either side is willing to walk.
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Frequently Asked Questions — Appraisal contingency
What is an appraisal gap?
It's the difference between your agreed purchase price and the lower value the appraisal comes back at.
Can I ask for a second appraisal?
You can't typically order a brand-new appraisal for the same loan, but your agent can request a reconsideration of value with additional comps.
Should I waive my appraisal contingency?
Only if you're prepared to cover a potential value gap in cash; your agent can help you weigh the risk against the competition.
Does the seller ever cover the appraisal gap?
Occasionally, especially if they're motivated to keep the deal together, but it's negotiated case by case and never guaranteed.