Appraisal Contingency: The Clause That Can Save Your Earnest Money

The appraisal contingency is probably the least understood piece of a residential purchase contract. It's also one of the most valuable. It's the clause that lets you walk away with your earnest money if the lender's appraisal comes in lower than what you agreed to pay. If you're financing a home purchase, you almost certainly want this protection in place.

What It Actually Says

The exact wording varies by state and contract template, but the core idea is simple: if the property does not appraise at or above the purchase price, the buyer has the option to either renegotiate the price, cover the difference out of pocket, or cancel the contract and receive a full refund of the earnest money deposit. The contingency has a deadline, typically tied to your loan application timeline, and you must act before that date.

Your attorney should walk you through the specific language in your contract. Pay particular attention to: the deadline, whether the contingency auto-terminates if you don't act, and any specific notice requirements for exercising it.

How It's Different from Inspection and Financing Contingencies