What Is an Appraisal Contingency
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An appraisal contingency lets a buyer walk away or renegotiate if a home appraises below the agreed price, since a lender caps its loan at 80% of appraised value, not offer price. In NYC, co-ops appraise harder than condos, since fewer comparable sales make a low number more likely. Waiving it means covering any gap yourself, in cash.
We represent NYC buyers, and this is one of the contingencies clients ask us to explain before every offer. It only matters once, but when it matters, it matters a lot.
The difference between the bank’s number and yours is exactly what this contingency protects.
How does an appraisal contingency work
A lender doesn’t loan against your offer price. It loans against the appraised value, using a licensed appraiser’s assessment of the home based on comparable sales. If the appraisal comes in at or above your offer, nothing changes. If it comes in below, the appraisal contingency gives you the right to renegotiate the price or walk away with your deposit back.
Without that contingency, you’re on the hook for the full offer price regardless of what the appraisal says. Our pillar guide to negotiating in NYC covers where this sits among the other tools buyers use in a competitive offer.
Appraisal contingency example, done cleanly
Say you offer $800,000 on an apartment, with 20% down and an 80% loan-to-value mortgage. If the appraisal comes back at $800,000 or higher, the lender covers its 80% share as planned.
| With the appraisal at value | With the appraisal $50,000 low | |
|---|---|---|
| Offer price | $800,000 | $800,000 |
| Appraised value | $800,000 | $750,000 |
| Lender covers (80%) | $640,000 | $600,000 |
| Your cash needed | $160,000 | $200,000, or renegotiate |
The same gap, whichever way you look at it, is $40,000. Either you find it in cash, the seller drops the price to match, or you walk with your deposit intact because you kept the contingency.
Waiving an appraisal contingency
A bet that the bank agrees with you is what waiving this contingency really is. Buyers do it to make an offer more competitive in a bidding war. A seller reading two similar bids often favors the one with fewer conditions attached.
The tradeoff is real: waive it, and a low appraisal becomes entirely your problem, with no legal exit and no built-in cash cushion. It’s a reasonable move for an all-cash buyer with room to spare. It’s a risky one for a buyer stretching to the top of their pre-approval.
Appraisal gap in NYC real estate
The co-op’s thin comp pool makes a low number more likely, not less. Condos draw comparable sales from a wider pool of similar buildings nearby. Co-ops usually don’t. Appraisers lean heavily on recent sales within the same building, and a quiet building with few recent closings gives an appraiser thin material to work with.
That’s part of why an escalation clause and an appraisal contingency need to be thought through together. Escalating your price past the building’s own recent comps raises exactly the gap this contingency exists to catch.
Where this fits among every other contingency
One clause among several, not the whole contract, is what an appraisal contingency really is. A mortgage contingency protects you if financing itself falls through, which is a separate risk from the appraised value coming in low. A contingent offer more broadly covers how contingencies as a category shape a buyer’s leverage in the first place.
What we tell clients before they waive one
The number they’d actually have to write a check for is what we walk through before anyone waives an appraisal contingency. It’s easy to agree to waive it in the excitement of a bidding war. It’s harder to actually produce $40,000 or $80,000 in cash on short notice if the appraisal disappoints.
As Georges puts it, “it’s all about the numbers and the execution,” and this is one of the clearest places that shows up: know your real cash reserve before you decide what to waive. On an average purchase our commission rebate returns roughly $22,000 at closing, which some clients hold in reserve for exactly this scenario. Run your full numbers on the closing cost calculators before you commit either way.
Common questions
How does an appraisal contingency work? It lets you renegotiate the price or walk away with your deposit if a home appraises below your offer. Without it, you’re contractually obligated at the original price regardless of the appraisal.
What is an appraisal contingency example? On an $800,000 offer with an appraisal $50,000 low, an 80% loan-to-value mortgage leaves a $40,000 gap. You’d cover it in cash, get the seller to lower the price, or walk away.
Should I waive an appraisal contingency in NYC? Only if you can comfortably cover a gap in cash. It can make an offer more competitive, but it removes your protection entirely if the appraisal disappoints.
Why do NYC co-ops appraise differently than condos? Co-op appraisals usually rely on comparable sales within the same building. That’s a smaller pool than a condo draws from across similar nearby buildings, making low appraisals more common.
Is an appraisal contingency the same as a mortgage contingency? No. A mortgage contingency protects you if financing falls through entirely. An appraisal contingency protects you specifically if the home’s appraised value comes in below your offer.
Nicole Fishman Benoliel co-founded NestApple in 2017. She's a lawyer admitted to the New York bar - her law degree is from La Escuela Libre de Derecho in Costa Rica, with further study at IE Business School in Madrid and an LLM from Fordham in New York. She does not act in a legal capacity at NestApple; every client is referred to an attorney who handles real estate deals full time.
