The short answerAn appraisal contingency lets you renegotiate or cancel if the home appraises below the contract price, so you are not forced to cover a large gap out of pocket.
What the appraisal does
The lender orders an independent appraisal to confirm the home's market value supports the loan. The appraiser reviews the property and recent comparable sales nearby. Your loan amount is based on the lower of the purchase price or the appraised value.
When the appraisal comes in low
If the value is below your contract price, you usually have a few options:
- 1Ask the seller to lower the price to the appraised value.
- 2Meet in the middle, with the seller reducing the price and you covering part of the gap.
- 3Cover the gap with additional cash, if you can and want to.
- 4Request a reconsideration of value with better comparable sales.
- 5Cancel, if your contract allows it, and protect your earnest money.
How the contingency works in Arizona
Arizona's standard residential purchase contract addresses appraisals, with specific notice deadlines. Contracts can be modified, and some buyers choose to waive or limit appraisal protection to make an offer more competitive. Your agent will explain the exact terms in your contract.
Waiving appraisal protection means you could have to cover a gap in cash. Only do it if you have the funds and understand the risk.
Challenging a low appraisal
If you believe the appraisal missed relevant sales or features, your agent can gather comparable sales and I can submit a reconsideration of value through the lender. It doesn't always change the result, but it's worth doing when the evidence is strong.
My advice
Keep the appraisal contingency unless you have a clear reason and the cash to cover a gap. If you're competing in a multiple-offer situation, talk with your agent and me about safer ways to strengthen your offer.