What is the purpose of an appraisal contingency?

An appraisal contingency serves a crucial role in real estate transactions by providing a protective mechanism for buyers. When included in an offer, it allows the buyer to negotiate or potentially withdraw from the agreement if the property does not appraise at or above the agreed-upon purchase price.

If the appraisal comes in lower than the purchase price, the buyer can either request that the seller reduce the price to match the appraisal or they may decide to terminate the contract without penalties. This contingency is particularly important because it helps ensure that the buyer does not overpay for a property, potentially avoiding a financial loss in the future.

In contrast, other options do not accurately describe the function of an appraisal contingency. Ensuring the property is ready for sale, securing financing, or finalizing the sale agreement do not address the specific circumstance regarding the valuation of the property, which is the primary focus of an appraisal contingency.