Whether you’re a first-time homebuyer or seasoned buyer looking to upgrade or downsize, navigating the housing market can definitely be daunting. Regardless of your experience level, the complex jargon and legalities involved when home buying can be difficult to understand, but don’t worry. In this Redfin Real Estate article, we’ll be exploring exactly what an appraisal contingency is and how it can impact the homebuying journey, so there’s one less term to be confused about.
Key takeaways
- An appraisal contingency allows the buyer to renegotiate or back out of the deal if the home appraises for less than the purchase price.
- If the home appraises for the same or more than the agreed-upon purchase price, the deal continues – sometimes the buyer will have to make up the price difference.
- You may choose to waive an appraisal contingency to make your offer more attractive or if you’re confident in the property’s value, but it’s risky.
Table of contents
What is an appraisal contingency?
An appraisal contingency is a clause in a real estate purchase agreement that allows the homebuyer to back out of the transaction or renegotiate the terms of the sale if the property appraisal comes in lower than the agreed-upon purchase price.
Benefits of an appraisal contingency
There are several reasons buyers may include an appraisal contingency, such as:
- Financial protection: If the appraised value is lower than the agreed-upon price, the buyer isn’t stuck purchasing the overpriced property.
- Negotiating power: The buyer can renegotiate the terms of the purchase if the appraised value is lower than the agreed-upon price.
- Ability to walk away: If the appraised value is lower than the agreed-upon purchase price, the buyer can terminate the deal and get their money back.
Drawbacks of an appraisal contingency
Despite the benefits, there are a couple of reasons why a buyer might not want to include an appraisal contingency, such as:
- Less…