What Is an Appraisal Contingency? (2025 Homebuyer Guide)

If you're buying a home, you'll likely come across the term appraisal contingency in your purchase contract. But what does it actually mean—and why is it so important?

In this 2025 guide, we'll break down how an appraisal contingency works and why it matters for homebuyers in Colorado.

What Is an Appraisal Contingency?

An appraisal contingency is a clause in a real estate contract that protects the buyer if the home appraises for less than the agreed purchase price.

If the appraisal comes in low, you can renegotiate or walk away without losing your earnest money (in most cases).

What Is an Appraisal?

An appraisal is a professional evaluation of a property's market value conducted by a licensed appraiser. Lenders require appraisals to ensure the home is worth the purchase price and the loan is backed by sufficient value.

How an Appraisal Contingency Works

After your offer is accepted:

• Your lender orders an appraisal
• The appraiser determines the home's value
• The result impacts how the deal moves forward

What Happens If the Appraisal Comes in Low?

If the appraised value is lower than the purchase price, you typically have a few options:

Example of an Appraisal Contingency

• Purchase Price: $500,000
• Appraised Value: $470,000
• Difference: $30,000

Without a contingency: you may have to cover the gap or risk losing your deposit.

With a contingency: you have flexibility to renegotiate or exit.

Why Appraisal Contingencies Matter

Appraisal contingencies help protect buyers from overpaying for a property, financing issues, and unexpected out-of-pocket costs.

When Buyers Waive Appraisal Contingencies

In competitive markets like Denver and Colorado Springs, some buyers waive appraisal contingencies to make their offer more attractive. However, waiving this protection increases financial risk. Learn how to compete safely in our competitive buyer guide.

Appraisal Contingency vs Financing Contingency

These are often confused but serve different purposes:

• Appraisal Contingency → protects against low property value
• Financing Contingency → protects if loan approval fails

Both are important parts of a real estate contract — see our financing contingency guide for the full breakdown.

Final Thoughts

An appraisal contingency is one of the most important protections for homebuyers. It ensures you're not forced to overpay for a property if the appraised value doesn't support the purchase price. Understanding how it works can help you make smarter decisions and avoid unnecessary financial risk.

New to home buying? Start with our first-time homebuyer guide or learn how the LTV ratio can shift after a low appraisal.