Buying and selling a home isn’t as straightforward as, say, buying your groceries or shopping on Amazon. Part of the complexity of real estate transactions is that they can involve contingencies — conditions that parties add to an agreement that have to be met before the deal can be finalized. In particular, you may be wondering: what is an appraisal contingency, and why is it important?
Generally, an appraisal contingency protects a buyer when a home they’ve made an offer on appraises for less than the amount the buyer offered to pay. Appraisal contingencies are just one type of contingency. Other types include a sales contingency, financing contingency, and inspection contingency.
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First, what is an appraisal?
A home appraisal is a professional determination of a home’s value. A licensed appraiser, who is trained in the field, will evaluate a house and take several factors into consideration when calculating the appraised value. They will likely look into comparable homes (or comps), the size of the lot, new upgrades, and the location. After appraisal, the buyer should receive an appraisal report in about a week.
Banks and mortgage lenders use the appraised value to determine the highest mortgage amount they are willing to loan a borrower, to ensure that they are not financing an overvalued asset.
Special situations
All-cash buyers will not have to get an appraisal since there is no mortgage lender involved, although they can opt to coordinate for one. Additionally, buyers with FHA and VA loans are required to get an appraisal, which must meet certain standards set by the government.
Appraisal example
Let’s say a house lists for $200,000, but in a hot market, the seller accepts an offer of $300,000. However, the appraised value comes in lower at $250,000. That creates a $50,000 overage — or appraisal gap — that the lender will not provide funds for. To move the deal forward, the seller and buyer will need to renegotiate.
In this event, the buyer can increase the amount of money they put down, the seller can reduce the price, or the parties can meet somewhere in the middle. The appraisal contingency allows the buyer to exit the contract and receive their earnest money should the home not appraise or if the seller won’t agree to a new arrangement. Without an appraisal contingency, the buyer could still walk away but would likely sacrifice their earnest money in the process.
What is an appraisal contingency?
When included in a purchase offer, an appraisal contingency allows the buyer to either negotiate their offer or exit the deal if the appraisal comes in under contract value. With the inclusion of the appraisal contingency, they can retrieve their earnest money and terminate the contract.
The buyer will still have to pay the cost of the appraisal, which usually sits between $500-$600.
In a balanced market, in which supply and demand are in comfortable equilibrium, an appraisal contingency is a fairly common and advisable move, says Johnna Hall, a top real estate agent in Aurora, Colorado. Balanced market conditions might mean a house sitting on the market for a while, or only getting one or two offers, Hall says.
“They would definitely want to do an appraisal contingency that protects them and protects the lender,” Hall explains. “Basically so that the lender’s not financing a property that is worth less than what they’re financing it off of, and so that the buyer’s not paying more than a property’s worth.”
Is an appraisal contingency different from a finance or inspection contingency?
In general, a contingency is a requirement that must be met in order for a real estate contract to be legally binding. It’s common for buyers to include stipulations that the home be inspected (inspection contingency), that the deal be conditional on their financing being approved (financing contingency), and that the house appraise at or above contract value (appraisal contingency).
“An inspection contingency says that the property has to pass an inspection with only defects that are acceptable to the buyer,” Hall explains. “But if there’s anything not acceptable to the buyer, they would have the right to come back and ask the seller to correct those items.”
Similarly, a financing contingency allows buyers to back out of the deal if they cannot secure financing with deals agreeable to them.
What causes a low appraisal?
In 2024, 8% of appraisals came in lower than the sales price. Several factors can cause a low appraisal, including fast-rising property values, the condition of the house, location, and lot size. Hall explains that in a seller’s market, it’s more likely to get a low appraisal due to the way appraisals are calculated.
When appraisers take comps into consideration, they use the last six months of sales. When prices are rising so rapidly, the prices from the last six months are often lower than today’s prices.
“That’s because there’s a big difference between market value right now and appraisal value because appraisals are based on the last six months sold,” Hall explains. “Then market value is what a buyer’s willing to pay now, and it’s typically higher.”
How common is an appraisal contingency?
Generally, appraisal contingencies are more common in a buyer’s market, when buyers have the upper hand over sellers, or in a balanced market where the scales are mostly even.
But many buyers are hesitant about making a contingent offer due to the stiff competition. In October 2025, 19% of buyers waived the appraisal contingency to make their offer more competitive. And 20% of buyers waived the inspection contingency.
“It definitely makes the offer stronger because the sellers, when they’re looking at multiple offers, are weighing the highest price but also looking for the least risk in the transaction,” Hall comments. “So if a buyer can waive their appraisal contingency, then it’s usually less risk to the seller, like if they’re paying in cash or they have twenty percent or more down payment.”
However, buyers should be wary of waiving their appraisal contingency if they don’t have the cash on hand to close an appraisal gap, since lenders, by definition, won’t finance the cost of the gap.
For example, if an appraisal came in $60,000 lower than the sales price, the buyer would have to come up with that money in cash on top of their down payment and closing costs. In many instances, buyers will have to lower their down payment in order to close the gap.
But that brings up another issue: if they put down less than 20% for their down payment, then they may have to pay for mortgage insurance, increasing their closing costs. They’ll also have a higher payment each month.
Will a low appraisal sink my sale?
Some home sales fall through because of low appraisals, but a low appraisal does not have to ruin your sale. Both buyers and sellers have options to ensure they don’t get caught off guard by a low appraisal.
Seller’s options when a house appraises low
1. Provide information for a reconsideration of value
Seller, agent, or borrower can provide information that triggers what’s known as a reconsideration of value by the appraiser.
“The listing agent has the right to send comps, to send a list of upgrades and features, to say, ‘Here’s a list of all the offers we had, there were X number of people willing to pay the price, so that’s obviously indicative of the true value of the property,’” Hall explains.
However, requests for changes to the appraisal need to come directly from the lender who ordered the appraisal, as they are considered the appraiser’s client.
2. Negotiate the sales price
If a buyer included an appraisal contingency in their offer, they can negotiate with the seller on the price when the appraisal comes back low. For example, if the purchase price was $500,000 and the appraisal came in at $450,000, the buyer could ask to meet in the middle at $475,000.
While negotiation may not eliminate the gap, it can help shrink it.
“More times than not, I can say that I’ve had the buyer and the seller meet halfway,” says Oriana Shea, a top-selling agent in Long Beach, California. In competitive markets, she explains that some buyers will try to make their initial offer more attractive upfront by including the amount they’re willing to pay out of pocket should the home not appraise — in which case the appraisal contingency may not be such a barrier for the sale to go through.
If the buyer did not include an appraisal contingency, they wouldn’t have the right to negotiation. They may be able to reduce their down payment to make up the difference, or come up with the cash another way. But unless they have a plan up front, this could make closing pretty messy.
“That’s why from a seller’s perspective, it’s extremely important that if you’re taking an offer like that, that you confirm before you accept that they have the funds available for down payment, closing costs, and a potential appraisal gap,” Hall says.
3. Choose the right offer
In a seller’s market, it’s usually more appealing for sellers to take offers without contingencies to reduce the risk of settlement delays or termination. But, as Hall explains, it’s vital that a seller and their agent do the necessary work to ensure a buyer can make up an appraisal gap before the seller takes an offer without contingencies.
Sellers can also ask buyers to remove contingencies from their offer.
“If you have a buyer that you know can cover [any difference in the sale price and appraised value] and the buyer wants the property badly enough, they’ll typically waive the appraisal contingency,” says Shea.
Ultimately, if the home is getting lots of offers, the seller and their agent will have to work together to decide what their best offer is with all factors considered. And as all-cash offers reached an all-time high in a decade, the right offer might include no appraisal or potential financing risks at all.
If you’re interested in getting an all-cash offer, consider using HomeLight’s Simple Sale platform.
Buyer’s options when a house appraises low
When a home appraisal comes in lower than the agreed-upon purchase price, a buyer has a few primary options, especially if they included an appraisal contingency in their offer. The primary goal is to bridge the appraisal gap — the difference between the sale price and the appraised value.
1. Pay the difference in cash
This is the most straightforward option, especially for buyers who waived the appraisal contingency or are determined to purchase the home. Since the lender will only finance the appraised value, the buyer is responsible for covering the shortfall in cash. This is the “gap” that a buyer must bring to the closing table in addition to their scheduled down payment and closing costs.
2. Renegotiate the sale price
If an appraisal contingency is in place, the buyer can ask the seller to lower the sale price to meet the appraised value. A seller may agree to this to keep the deal moving forward, especially if they believe a new appraisal for a different buyer would yield the same low result. The buyer and seller can also agree to meet in the middle, splitting the difference in the appraisal gap.
3. Challenge the appraisal (Reconsideration of Value)
If the buyer and their agent believe the appraiser made a mistake or overlooked key factors (like recent, favorable comparable sales that weren’t included, or upgrades the seller documented), they can request a “Reconsideration of Value” (ROV). This request must be submitted through the lender who ordered the original appraisal, and it must be supported by compelling data, such as:
- A list of more recent or relevant comparable sales (comps).
- Documentation of significant home improvements the appraiser may have missed.
- Corrections to factual errors in the appraisal report (e.g., incorrect square footage or bedroom count).
4. Cancel the contract
If the buyer included an appraisal contingency, and they cannot agree with the seller on a new price and are unable or unwilling to pay the difference in cash, the contingency allows them to terminate the purchase agreement. In this case, the buyer is typically able to recover their earnest money deposit.
5. Bring in a new lender for a second appraisal
In some cases, a buyer may attempt to switch lenders and request a new appraisal, hoping for a higher valuation. However, this carries risks, including delays in closing and the possibility that the second appraisal will also come in low. Also, not all contracts allow for this option, and it may require an extension of the contract deadlines.
Steps for sellers to reduce the chance of a low appraisal
Avoiding a low appraisal in the first place is the best way to skip a headache for sellers. Below are a few ways you can help prevent a low appraisal:
Work with an agent to set the right price
Your real estate agent will help to price your home according to what they anticipate it will appraise for before closing. While it’s still possible to get a lower appraised value than the contract price, a real estate agent’s goal is to minimize the chances of that happening.
Similar to an appraiser’s “sales comparison” approach, a top real estate agent analyzes local comparable sales or “comps” and puts together what’s called a comparative market analysis for their seller client to review before listing.
Comps are homes similar in size, amenities, structure, and age to your own that recently sold in your area. Real estate professionals and home appraisers use comps as a reference point for the subject home and then make dollar adjustments based on competitive differences. The analysis will take into account significant features that drive or reduce value.
A top agent will also “show their work” to the appraiser which can help in information sharing.
“I always meet the appraiser at my listing,” says Shea. She wants to make sure the appraiser sees the comparable properties she’s looked at to justify the price.
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