Considering Waiving the Appraisal Contingency? Here’s What to Know

How does an appraisal contingency work?

The appraisal contingency is one of the most common contingencies you’ll find in a real estate contract. After all, the mortgage loan amount often depends on the appraisal, and the appraisal contingency is there to protect the buyer (and the buyer’s lender) if the appraisal amount comes in lower than the purchase price.

Here’s the deal: The bank or financial institution providing the loan requires an appraisal report to determine the actual value of the house and set the loan amount. That’s because they will only lend you a certain percentage of the home’s actual value. The appraisal is necessary to ensure that the buyer doesn’t overpay for the property and gives the lender confidence that the value of the house will cover their lost investment if the buyer defaults on the loan.

“It’s a pretty valuable tool to allow the bank that is putting up the financing to understand that this property meets the criteria for that type of a loan,” says Peter Chicouris, a top real estate agent in St. Petersburg, Florida, with 33 years of experience, who’s sold 75% more single-family homes than the average St. Petersburg agent.

If the appraisal is lower than the purchase price, the contingency is there as a safeguard. In this case, “the buyer has the right to immediately have the contract terminated and have the earnest money returned to them,” explains Chicouris.

“They’ll lose the price of the appraisal, but that’s not a big expense compared to them possibly overpaying for a property.”

Can you remove or waive an appraisal contingency?

In a competitive real estate market, some buyers choose to waive the appraisal contingency to make their offer more attractive to sellers. But is this a smart move? While it can help secure a home, it also comes with significant financial risks.

Why would a buyer waive an appraisal contingency?

Sellers prefer offers without contingencies because they reduce the chances of a deal falling through. Buyers might consider waiving the appraisal contingency if:

• They are competing in a seller’s market. Homes with multiple offers often go to buyers who offer the fewest contingencies.
• They are confident in the home’s market value. If comparable sales (comps) support the purchase price, the risk of a low appraisal decreases.
• They are paying in cash. Without a lender, there’s no requirement for an appraisal to determine loan eligibility.
• They have additional funds to cover the gap. If the home appraises below the offer price, the buyer must cover the shortfall out of pocket.

How to mitigate risks when waiving an appraisal contingency

If you’re considering waiving this contingency, there are ways to protect yourself from financial loss:

1. Use an Appraisal Gap Coverage Clause – Instead of removing the contingency entirely, agree to cover a specific amount over the appraised value (e.g., up to $10,000).
2. Increase Your Down Payment – A higher down payment reduces the lender’s loan-to-value (LTV) ratio, lowering the impact of a low appraisal.
3. Request an Appraisal Waiver – Some lenders, particularly for conventional loans, may allow buyers with strong credit and finances to skip the appraisal altogether.
4. Get a Comparative Market Analysis (CMA) Before Making an Offer – Ask your real estate agent for a CMA report to ensure the home is priced correctly.

When does waiving an appraisal contingency make sense?

There are times when waiving the appraisal contingency can be mutually beneficial to the buyer and seller, and just like other contingencies, it has become more common recently. However, if and when you should waive it depends on your home and your financial capabilities.

First off, if you’re a cash buyer who is able to purchase the property outright or if you’re financing with a sizable downpayment (over 20%), an appraisal contingency may not be necessary unless you want to confirm you’re not paying more than the property is worth. But if the buyer will need a mortgage loan and includes a finance contingency in their contract, it is better not to waive the appraisal contingency because the appraisal is how the loan amount is confirmed.

Waiving an appraisal contingency is a high-risk, high-reward strategy that isn’t right for every buyer. However, it may make sense if:

• You have the financial resources to cover any appraisal gap.
• You’re purchasing below market value, reducing the risk of a low appraisal.
• You plan to stay in the home long-term, making short-term market fluctuations less impactful.

However, our experts agree there are exceptions. If you’re in a highly competitive market where homes are going fast and have multiple offers, waiving the contingency could strengthen your position and beat out the competition. Sellers prefer offers without an appraisal contingency because “that way they know that they’re not going to have any chances of the contract falling apart,” says Chicouris.

If you’re unsure whether waiving the appraisal contingency is the right move, consult a real estate professional or mortgage lender to assess the potential risks.

When would a particular property warrant a contingency waiver?

Chicouris and Costantino both advise that buyers only consider waiving the appraisal contingency if they’re working with an agent and the agent can validate the value of the property. They will help you weigh the risks versus the benefits.

Ask your agent what the consequences or cost will be if you waive the contingency and issues pop up, Costantino says. Also, ask if waiving the appraisal contingency will really make your offer stand out and get you the house. If it won’t, it might be better to keep the contingency in as an extra layer of protection. But if it will, it may be beneficial to let that stipulation go.

“It’s done all the time, especially in a place like New York, with so many offers made on the same property,” says Patrick Carmody, a real estate and insurance attorney with nearly 40 years of experience, who works as consulting counsel for New York real estate development and design firm Wheelhouse.

Another instance when waiving the appraisal contingency could be a good option is when the buyer could make a large down payment. This way, even if the appraisal is less than the offer price, the loan amount would only cover what the buyer still owes, and the financial institution might still agree to the loan.

Other reasons to waive the appraisal contingency could include a superior location, the potential for expanding or building onto the property — or you simply know it’s your dream home. That said, always consult with your real estate agent and your lender before considering this option when you’re obtaining any form of financing.

Why do some homes appraise lower than expected?

A low home appraisal can throw a wrench into a real estate transaction, potentially leading to renegotiations, financing issues, or even deal cancellations. But why does this happen? Here are some of the most common reasons homes appraise lower than expected — and what you can do about it.

Market conditions are changing

If home prices are declining, recent comparable sales (comps) used by appraisers may reflect lower values than the agreed-upon purchase price. Conversely, in a fast-appreciating market, appraisals may lag behind rising home values because they rely on past sales data.

Solution: If you’re in a rapidly changing market, request that the appraiser use the most recent and relevant comps available.

Inaccurate comparable sales (comps)

Appraisers determine a home’s value by comparing it to similar recently sold homes in the area. If the selected comps are outdated, located in different neighborhoods, or differ significantly in condition or upgrades, the appraisal may not reflect the home’s true value.

Solution: Buyers and agents can challenge a low appraisal by providing better comps that more accurately represent the home’s value.

The home’s condition affects the valuation

An appraisal isn’t just about square footage — it also factors in the home’s condition, updates, and maintenance. Issues like:

• Outdated kitchens or bathrooms
• Structural concerns (roof, foundation, plumbing)
• Visible wear and tear

…can cause the appraiser to adjust the valuation downward.

Solution: Before the appraisal, sellers should make minor repairs, freshen up paint, and ensure the home is in its best condition to maximize its perceived value.

The appraiser lacks local market knowledge

Not all appraisers are familiar with the nuances of a specific neighborhood. If an appraiser is unfamiliar with the demand, school districts, or desirability of an area, they may undervalue the home compared to other local professionals.

Solution: If you suspect the appraiser lacks market expertise, you may request a second appraisal or ask the lender for a review.

Unique home features are hard to value

If a home has custom features, luxury upgrades, or a non-standard layout, appraisers may struggle to find comparable properties, leading to a conservative valuation.

Solution: Provide detailed documentation of upgrades, including receipts and appraisals of specialty features, to justify a higher valuation.

The home is in a non-traditional location

Location plays a huge role in home valuation. Factors that may lower an appraisal include:

• Busy streets or commercial zoning nearby
• Proximity to highways, airports, or train tracks (due to noise and traffic)
• Neighborhood crime rates or declining property values

Solution: If the location is a concern, emphasize comparable homes with similar surroundings to show the appraisal is unfairly low.

What to do when a house appraises lower than the purchase price

Luckily, low appraisals don’t happen often. Chicouris says: “Out of 25 deals a month, it maybe happens once every three months.”

However, for the low percentage of homes that do appraise below the purchase price, it could lead to a delay in the sale. But if you end up in that boat, you do have options whether you have the appraisal contingency or not.

Option one: Ask for a second appraisal

If you can make a strong case that the property value is higher than the appraisal price, you can ask for a second appraisal. The lender hires the appraisal company, so the buyer can request that they hire a different appraiser for a second evaluation, providing the reasons why they believe the original appraisal is incorrect. Some of these reasons could include:

• Inaccurate information in the initial appraisal
• Less-obvious home features that were missed in the first appraisal
• Updated or improved features
• Comparable recently sold homes (comps) in the same area that were sold at a higher price than the appraisal

If the lender does not agree to arrange a second appraisal, some contingencies can include an option for the buyer to obtain another appraisal at their own expense.

As an alternative to requesting a second appraisal, the real estate agent has the right to submit a rebuttal to the appraisal company. The most powerful argument in appealing an appraisal is new, relevant comps provided by the agent. These can be used as leverage for the appraisal company to reconsider their appraisal.

“The buyer’s agent can run their own comparables and submit a rebuttal to see if maybe the appraiser made a mistake,” explains Chicouris.

Option two: Ask the seller to decrease the purchase price

Asking the seller to decrease the purchase price is a reasonable request. This is especially true if the home has been on the market for a significant amount of time; there is a likelihood that the next appraisal from a different buyer could also come in low.

For these reasons, sellers are often willing to meet in the middle and split the difference.

Option three: Pay for the difference yourself

To save the deal from falling through if none of the other options work, the buyer can make up the difference between the appraisal amount and purchase price by paying out of pocket. It’s not always the first or best option, but if you love the house and the deal is on the line, it might be worth it to you to make sure you wind up with keys in hand.

Appraisal Contingency: Frequently Asked Questions

You might still have a few lingering questions about how an appraisal contingency works and if it’s needed or not. Here’s some more information that might help you make your decision.

What is an appraisal?

An appraisal is the evaluation of a property, its location, and features — in comparison to recently sold homes — to determine its value.

Is an appraisal required to purchase my home?

If you purchase a home with cash, an appraisal is not required. However, if you are financing your purchase, your lender will usually require an appraisal to be done by an independent third party they hire. Lenders want to protect their investment from a loan default, and they will most likely want an appraisal to confirm you aren’t overpaying for your purchase.

How do I waive the appraisal contingency?

Your real estate agent can walk you through the exact process, but basically, you will not include an appraisal contingency clause in your purchase contract. Instead, you would add what’s called an appraisal gap guarantee. That means you agree to cover the gap between the offer price and the appraised value if it comes in low — at least up to a certain point (most buyers include a limit on how much they’ll pay to cover this gap). If you have already signed your contract, there are ways to release the contingency. The process to do this should be outlined in your purchase agreement.

What are the risks of removing the appraisal contingency?

The biggest risk is that you will be responsible to make up any difference between the purchase price and the appraisal value if it comes in low. For example, if you offered $350,000 and the appraised value comes in at $330,000, you’ll need to find a way to make up that $20,000. That could mean increasing your down payment or possibly losing your financing — and your earnest money — if you’re unable to resolve the issue.

What are the benefits of removing the appraisal contingency?

The biggest benefit is making your offer more attractive. Without the appraisal contingency, there are fewer opportunities for the deal to fall through, which is always good news to the seller. If you’re certain the value of the home is at or above your purchase price, it might be beneficial to waive the contingency to beat the competition. But you should be prepared to shell out more money for the home if need be.

Are there ways to protect myself without the appraisal contingency?

The best way to protect yourself against a low appraisal is to include the appraisal contingency. But estimating what the appraisal value might be by looking at accurate and realistic comps can help give you a look into your chances of having appraisal issues. Also, increasing your down payment may give you a buffer if there are any issues.

So, appraisal contingency or no appraisal contingency?

Low appraisals can be frustrating, but understanding why they happen and how to respond can help buyers and sellers navigate the process with confidence.

If you are financing your home, an appraisal contingency is strongly recommended to protect yourself from a low appraisal. With it, you can walk away from the contract with your earnest money deposit or use it as a bargaining tool.

On the other hand, without the appraisal contingency, a seller could be more likely to accept your offer over others if you’re able to pay cash or put down a large down payment. There’s a lot of information to consider when deciding whether to waive your appraisal contingency or not, and it’s highly situational. Take into account your location, your home’s value and recent upgrades, and how the real estate market is acting.

Most importantly, consult a trusted real estate agent. They’ll be able to give you accurate information and honest advice, and help you navigate your offer and contingencies. That way, you can make an educated decision and have some peace of mind you’re doing what’s best for your hefty investment.

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