What is an appraisal contingency in real estate contracts?

An appraisal contingency allows the buyer to back out or renegotiate if the home appraisal comes in below the contract price. This protects you from paying above market value. Typically, you have a set number of days to request the appraisal after contract signing. Including this contingency minimizes your financial risk. If the appraisal is low, you can ask the seller to reduce the price or cancel the deal without losing your earnest money.