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 state-licensed appraiser who is not allowed to take direction from either side, and commonly costs several hundred dollars — the $550-$900 range used illustratively on this site is typical rather than fixed.
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. Your agent supplies the comps; your loan officer submits the request. It succeeds or fails on the evidence: a genuinely better comparable sale that the report did not consider is the only argument that carries weight, and an appraiser is under no obligation to change the number.
Our advice
Keep the contingency in all but the most extreme bidding situations - and if you do waive it, cap your exposure: an "appraisal gap coverage up to $X" clause competes almost as well as a full waiver with a fraction of the risk.
The short version
If you remember 4 things.
- 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.
Written for a demonstration website. Copperline Home Loans is a fictional company, holds no mortgage license or NMLS identifier anywhere, and cannot lend or advise. This article describes how the mechanics generally work; it is not personalised advice, and no form on this site sends anything to anybody.