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Understanding the Bank Appraisal Contingency

What Every Homebuyer Needs to Know Before Signing a Contract
What Every Homebuyer Needs to Know Before Signing a Contract

When buying a home, one of the most important protections for a buyer is the bank appraisal contingency. This clause safeguards you if the home’s appraised value comes in lower than the agreed-upon contract price.


Why does this matter? Because lenders base the loan amount on the lower of the contract price or the appraised value not the higher number.


What Is a Bank Appraisal Contingency?

A bank appraisal contingency allows the buyer to renegotiate or cancel the contract if the property does not appraise for a sufficient amount, based on the terms outlined in the contract.

This protection helps prevent buyers from being forced to bring large amounts of unexpected cash to closing.


Real-World Example: Seller Concessions & Appraisal Gaps Contract Details:

  • Contract price: $708,000

  • Seller concession: 4% credit

  • Seller credit amount: $28,320

  • Credit applied toward buyer’s closing costs (instead of lowering the contract price to $681,000)


Appraisal Outcomes:

✅ If the appraisal comes in at $708,000 or higherThe deal is fully supported and moves forward as planned.

⚠️ If the appraisal comes in at $681,000

  • Appraisal gap: $27,000 ($708,000 − $681,000)

  • The lender bases the loan on $681,000

  • The buyer must:

    • Renegotiate the price

    • Bring additional cash

    • Restructure the seller credit

    • Or cancel the contract (if protected by the appraisal contingency)


Minimum Appraisal Clause Explained

Some contracts include a minimum appraisal clause, such as:

“Appraisal must be at least $695,000.”

How this works:

  • If appraisal = $695,000

    • Gap still exists: $13,000 ($708,000 − $695,000)

    • Buyer must address the difference

  • If appraisal is below $695,000

    • The appraisal contingency is triggered

    • Buyer can renegotiate or cancel per contract terms


Why Appraisal Strategy Matters

Appraisal contingencies, seller credits, and contract pricing all work together. A strong offer strategy balances:

  • Competitive pricing

  • Smart use of concessions

  • Built-in protections for the buyer

This is where experienced real estate and mortgage professionals make a major difference.


Understanding how appraisals impact your purchase can save you from costly surprises. Whether you’re a first-time homebuyer or an experienced investor, knowing your options and having the right team guiding you matters.

Terms and conditions apply.


LJ — Your Local Guide to Homeownership!

📍 127-03 Rockaway Blvd South Ozone Park, NY 11420

📞 (516) 218-1297

LJ Realty Team

Buy • Sell • Rent Equal Housing Opportunity

LJ Mortgage Team Inc. | NMLS #2120286

Purchase & Refinance NYS Registered Mortgage Broker – NYS Dept. of Financial Services Broker arranges mortgage loans with third-party providers. Mortgage Broker Only — Not a Mortgage Lender or Mortgage Correspondent Lender. Licensed by the NJ Department of Banking and Insurance. We do not make loan commitments or fund mortgage loans.🔗 www.nmlsconsumeraccess.org



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