What Is Appraisal Contengency

 


What Is Appraisal Contingency: A Key to Protecting Your Home Purchase

An appraisal contingency is a clause in a real estate contract that protects buyers by allowing them to back out of the deal if the home appraises for less than the agreed-upon purchase price. Essentially, it’s a safeguard that ensures buyers don’t overpay for a property while reassuring lenders that the home’s value justifies the loan amount.

When you purchase a home, especially with a mortgage, the lender requires an independent third-party appraisal to assess the home’s market value. This appraisal helps determine how much the lender is willing to lend. If the appraisal comes back lower than the sale price, the lender may only approve a loan for the appraised value, leaving the buyer responsible for covering the difference out-of-pocket.

With an appraisal contingency in place, the buyer has several options if the appraisal is lower than the purchase price. They can renegotiate the price with the seller, walk away from the deal, or adjust their financing. Without an appraisal contingency, the buyer is still legally bound to purchase the home at the agreed price, even if the home’s value doesn’t match. In this case, the buyer risks losing their earnest money deposit and could face legal consequences if they back out.

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