What is an appraisal contingency? The clause in a purchase contract that lets the buyer cancel and take the earnest money back if the lender's appraisal comes in below the agreed price.
An appraisal contingency makes the sale conditional on the home appraising at or above the price in the contract. If the appraiser writes a lower number, the clause gives the buyer a way out with the deposit returned, or a lever to reopen the price. Without it the buyer is bound at the higher figure and has to make up the difference in cash or walk away from the earnest money.
It overlaps with the loan contingency without being the same clause. A low appraisal shrinks what a lender will lend, because the loan is sized against the lower of price and appraised value, so a buyer holding only a financing contingency often has a route out anyway once the file is declined. The difference is timing and certainty: the appraisal contingency triggers on the number itself, on its own deadline, and does not wait for an underwriting decision. Waiving it is how buyers competed when inventory was scarce, and appraisal gap coverage is the middle position: the buyer promises in writing to cover a stated amount of any shortfall in cash and keeps the exit below that.
The Nevada residential purchase agreement handles it as a dated step rather than an automatic cancellation. The appraisal sits inside the buyer's due diligence period with its own deadline. A value under the purchase price opens a short window in which the buyer gives written notice, and the seller can then reduce the price, meet part way, or refuse, at which point the buyer either cancels with the earnest money released or proceeds on the original terms. Nothing happens by itself. A buyer who misses the notice deadline has effectively waived the contingency, and that is the failure that costs deposits here rather than any argument about the appraiser's comparables.
A worked example
A house is under contract at $480,000 with 20 percent down and the appraisal comes back at $462,000, an $18,000 shortfall the lender will not finance. Under the appraisal contingency the buyer gives written notice inside the deadline. The seller agrees to cut the price to $471,000, the buyer brings the remaining $9,000 in cash on top of the down payment, and the deal closes. Had the buyer missed the notice date, the choice would have been the full $18,000 in cash or the earnest money.
What happens when the appraisal comes in low
Questions people ask
Can you get your earnest money back if the appraisal is low?
Yes, where the appraisal contingency is in the contract and the buyer gives written notice by its deadline. Miss the deadline and the contingency is treated as waived, which puts the deposit at risk if the buyer then walks away from the price.
What is the difference between an appraisal contingency and appraisal gap coverage?
The contingency lets the buyer cancel over a low appraisal. Gap coverage is the opposite promise: the buyer agrees in advance to pay a stated amount of any shortfall in cash, which makes the offer stronger and gives up part of the exit.