1. An appraisal contingency protects the buyer when:
Answer & explanation
Answer: A. An appraisal contingency allows the buyer to renegotiate or cancel (with deposit refunded) if the appraisal comes in below the price within the contingency period.
contracts
appraisal contingency
An appraisal contingency is a clause in a purchase contract that lets the buyer cancel or renegotiate if the property appraises for less than the purchase price. It protects the buyer from overpaying and from having to make up a loan shortfall in cash, since lenders base loan amounts on the lower of price or appraised value. The clause usually sets a deadline and procedure for exercising it.
- Exam tip
- Lenders lend on the lower of price or appraised value. The appraisal contingency protects the buyer, and waiving it means the buyer covers any gap.
- Example
- A buyer contracts to pay $400,000 but the appraisal comes in at $380,000; the appraisal contingency lets her renegotiate or cancel.
Related terms & state variants
Sources
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Last verified: 2026-10-23