What the appraisal does
Your lender lends against the lower of the price or the appraised value. The appraisal protects both of you from overpaying relative to the market. It is ordered by the lender, performed by an independent licensed appraiser, and typically costs $550-$900.
When it comes in low
Suppose you offer $500,000 and the appraisal returns $485,000. The lender bases the loan on $485,000, leaving a $15,000 gap. With an appraisal contingency you have options: renegotiate the price, split the difference, pay the gap in cash, or walk away with your earnest money.
Without the contingency, you must cover the gap or forfeit your deposit. That is the risk you accept when you waive it to compete.
Challenging a low appraisal
A reconsideration of value can work when the appraiser missed a truly comparable recent sale, or when the report contains a factual error such as a wrong square footage. Your agent supplies the comparable sales; your loan officer submits the request. It succeeds on evidence, not on disagreement, and it frequently does not succeed at all.
Our advice
Keep the contingency in all but the most extreme bidding situations. If you do waive it, cap your exposure: an "appraisal gap coverage up to $X" clause competes on the same ground as a full waiver while putting a ceiling on what a low value can cost you.
What to take away
- Lenders lend on the lower of price or appraised value.
- The contingency gives you negotiating power when values come in low.
- Reconsideration of value works when real comps were missed.
- Capped gap coverage beats blanket waivers.
Illustrative sample figures for a template demonstration. Not a rate quote, not an offer to lend, and not live market data.