What is Appraisal Contingency in Real Estate?

What is Appraisal Contingency in Real Estate?


An appraisal contingency is the contingency type in the real estate market. Also, this one most likely impacts overall property deals among the real estate contingencies. The contingency clause is a part of the purchase contract. It helps residential investors withdraw from the agreement if the appraisal amount does not exceed the purchase price. And commonly, buyers are the one who uses it. If a home evaluation is lower than the purchase-specific cost in the agreement, a condition known as a real estate appraisal contingency clause allows homebuyers to cancel their agreement. Further, buyers utilizing financing to purchase a home or buying a home in an area where prices fluctuate frequently use appraisal contingencies.

How does it work?

Let the seller know that the buyer plans to appraise the asset as part of their acquisition. Typically, conditions are incorporated into purchase offers as part of the purchase of securities. Suppose the assets or commercial real estate economics don’t appraise for the amount the buyer offered to give. Further, this contingency allows the buyer to cancel the contract without forfeiting their initial deposit or incurring any penalties.

Property Assessment & Inspection

A professional is hired by a purchaser to inspect and assess the property in light of previous sales of comparable houses in the neighborhood. The appraiser then provides the client and their lender with a report on their findings. In addition, a house appraisal gives a property that is being bought an objective value. Further, this is important because most lenders it is not applicable to lend so much against an asset as it is worth.

The appraisal is payable by the purchaser. Also, they are the main culprit in the buying process. Moreover, the amount set for the appraisal contingency real estate is the highest amount the mortgage company can give. So, to understand property economics, this contingency plays a pivotal role before purchasing a profitable asset.

Why is it important?

Suppose the property’s appraised worth is less than the agreeable original cost. In that case, this contingency safeguards the buyer by allowing them the opportunity to cancel the agreement or renegotiate the terms. Moreover, this condition prevents the buyer from spending for a residence and offers some insurance against possible losses if they cannot obtain the purchase’s finances.

If the appraised value exceeds the agreeable purchase cost, the buyer may ask the seller to reduce the price or terminate the contract without incurring any fees. Also, the appraisal contingency real estate typically stipulates that a certified appraiser must complete the appraisal and finish within a certain time, normally available in the purchase agreement.

Non-Applicable Conditions

Sometimes the buyers do not want a real estate appraisal contingency clause in the agreement. Moreover, there will be a situation where buyers can pay a more considerable amount of the downpayment. And in this condition, the purchasers can waive this clause from their purchase agreement.

Here are some cases when this agreement can not be applicable. The details are accessible below:

  • When the purchaser is giving cash for the property buy.
  • If the buyers have a huge downpayment, that is 20-25% of the total plot amount. Then the clause might not be applicable.
  • When the purchaser buys property to renovate it.
  • Lastly, when the seller is financing the property, the buyer does not have to look for any lender.


The contingency is one type of real estate contingency that allows investors a benefit if they do not have the wholesome amount to pay or enough for the downpayment. Moreover, investors usually try to deliver sufficiently to avoid this clause in their agreement. However, some situations will allow the investors to build a more viable acquisition. Also, the contingency allows the benefits to the purchasers to another level. Few of them are available in the article.

Also, there are some conditions when the purchaser can waive this from their purchase agreement. Lastly, investors can contact Estate Land Marketing to collect the desired information regarding the different real estate contingencies.

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