What purpose does an appraisal contingency serve in a purchase agreement?

An appraisal contingency plays a crucial role in a purchase agreement by allowing a buyer to withdraw from the contract if the property's appraised value comes in lower than the agreed-upon purchase price. This contingency serves as a safeguard for the buyer, ensuring that they are not obligated to go through with a purchase that may not be financially sound. If the appraisal reflects a lower value, the buyer can reassess their decision, potentially renegotiate the offer, or walk away without financial penalty.

In real estate transactions, it’s important for buyers to ensure they are making a sound investment, and the appraisal contingency provides that assurance. If the appraisal is lower, the buyer can avoid the risk of purchasing a property for more than its actual worth, aligning with sound financial practices.