In what scenario would a buyer utilize an appraisal contingency?

A buyer would utilize an appraisal contingency to ensure the property value meets or exceeds the purchase price. This provision protects the buyer by allowing them to negotiate or back out of the purchase if the appraised value is lower than the price they have agreed to pay.

When a property is appraised, a professional appraiser evaluates its value based on various factors, such as the condition of the property, location, and comparable sales in the area. If the appraisal comes in below the purchase price, the buyer can either renegotiate the price with the seller, cover the difference in cash, or cancel the contract altogether, depending on the terms of their agreement. This contingency is essential because mortgage lenders typically require the property to be worth at least the purchase price to secure financing, making it a critical protection for the buyer in the real estate transaction.