What does "appraisal contingency" mean?

An appraisal contingency is a provision included in a real estate purchase agreement that allows a buyer to withdraw their offer or renegotiate the deal if the property does not appraise for the agreed-upon sale price. This clause protects the buyer by ensuring that they will not overpay for the property based on its market value as determined by a professional appraiser. If the appraisal comes in lower than expected, the buyer has the option to either walk away from the transaction or negotiate a lower price that aligns more closely with the appraised value.

In contrast, a requirement for property insurance focuses on the buyer securing coverage to protect the property rather than the purchase transaction itself. An increase in property taxes pertains to ongoing tax obligations related to property ownership and does not influence the ability to withdraw an offer. A guarantee of property condition implies assurances about the physical state of the home, which is separate from the assessment of its value through an appraisal. Thus, the understanding of appraisal contingencies is integral in transactions as it safeguards a buyer's investment against overvaluation.