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Hole 15 · Back Nine — Execute

Appraisal & Financing Contingencies

An appraisal confirms your lender is not loaning more than the home is worth, and a low appraisal can stall a deal fast. This hole explains how appraisals work, what your options are when one comes in low, and how financing contingencies protect your earnest money.

8 min read · Free, no signup

Written by Andrew Moran · Loan Officer · GoRascal | NMLS #1264497

What an appraisal verifies, and why your lender orders it

A home appraisal is an independent estimate of market value completed by a licensed appraiser your lender selects — not you or your agent. Lenders won't finance more than the appraised value, so the appraisal sets a real ceiling on your loan. The appraiser compares your home to a handful of recent, similar sales nearby to reach that number.

  • The buyer pays for the appraisal, but the report belongs to the lender.
  • Appraisers are independent — no relationship to buyer, seller, or agents is allowed.
  • You're entitled to a copy of the completed appraisal report.

When the appraisal comes in low: your four options

If the home appraises below your offer price, your lender will only finance up to that lower number. You have four real options: renegotiate the price down to match, pay the gap in cash, ask the seller for a credit, or use your appraisal contingency to walk away with earnest money protected. Waiving the contingency removes that fourth option.

  • Renegotiating price to the appraised value is the most common path in a balanced market.
  • Covering the gap in cash keeps the deal at the original price but raises your cash-to-close.
  • If you waived the appraisal contingency, the gap must be covered or the deal falls apart without earnest money protection.

The financing contingency protects your earnest money if the loan falls through

The financing contingency lets you exit the contract and recover your earnest money if your loan is denied despite acting in good faith with your lender. It typically runs about three weeks from mutual acceptance. Waiving it is a risk unless you're fully underwritten — meaning income, assets, and credit are verified, with the appraisal as the only condition left.

  • A standard pre-approval letter is not the same as being fully underwritten.
  • Financing contingency windows typically run about three weeks from mutual acceptance.
  • Ask your lender directly: is this fully underwritten, or still conditional on documents?

An appraisal gap clause: a middle path between keeping and waiving

An appraisal gap clause commits you to covering a low appraisal only up to a dollar amount you set, instead of waiving the protection entirely. It signals confidence to the seller without exposing you to an unlimited gap. A full waiver, by contrast, means covering any shortfall, however large — only take that on with real cash reserves behind it.

  • Gap clause: 'I'll cover up to $X if the appraisal comes in low' — capped risk.
  • Full waiver: you close regardless of appraised value — the highest-risk position.
  • The lender still orders the appraisal either way; the waiver protects the seller, not the lender.

Mastery check

Prove it out before you move on.

Caddie

Before you play through — quick read of the green:

4 quick questions. Get all but one right and this hole is marked played. Unlimited retries — there's no penalty for missing one.

Question 1 of 4

What does a home appraisal verify, and who orders it?

Question 2 of 4

What are your four options if the appraisal comes in below your offer price?

Question 3 of 4

What does the financing contingency protect if your loan is denied in good faith?

Question 4 of 4

What's the difference between an appraisal gap clause and a full contingency waiver?

Still stuck? Ask the Caddie.

Hole 14: InspectionHole 16: Closing Costs