Short answer: an appraisal contingency lets a buyer cancel a purchase, or renegotiate, if the lender’s appraisal comes in below the contract price. In New York, standard contracts usually include a mortgage contingency (tied to getting a loan commitment) rather than a separate appraisal contingency, so a low appraisal does not automatically let you walk away. Whether you are protected depends on how the contract is written. Our full guide to mortgage contingency clauses in New York explains how that clause is drafted and the deadlines it carries.
Lenders base the loan on the lower of the purchase price or the appraised value. If a $1,000,000 apartment appraises at $950,000, an 80% loan shrinks from $800,000 to $760,000, and the buyer must cover the $40,000 difference (the appraisal gap) in cash, renegotiate, or cancel if the contract allows it.
Appraisal Contingency vs. Mortgage Contingency in New York
| Appraisal contingency | Mortgage contingency | |
|---|---|---|
| What it protects against | Appraisal below the contract price | Failing to get a loan commitment by a deadline |
| Common in NYC contracts? | Not standard; must be negotiated | Standard in financed purchases |
| Covers a low appraisal? | Yes, directly | Only if the low appraisal causes the lender to deny or reduce the commitment below the required amount, depending on the wording |
| Typical trigger | Appraised value below price | No commitment by the contingency date |
Once a buyer receives a loan commitment, the mortgage contingency is usually satisfied, even if the buyer later has trouble closing. That is why the timing of the appraisal and the exact contingency language matter so much.
What Happens If the Appraisal Comes In Low?
- Renegotiate the price. A low appraisal gives the buyer a reason to ask the seller to reduce the price or give a credit.
- Cover the gap. The buyer adds cash to make up the difference between the reduced loan and the price.
- Split the difference. Buyer and seller share the gap through a price reduction and extra cash.
- Challenge the appraisal. The buyer or broker can ask the lender to reconsider with better comparable sales.
- Cancel, if the contract allows. With an appraisal contingency, or a mortgage contingency that is not yet satisfied, the buyer may cancel and recover the deposit.
Co-ops and Low Appraisals
In a co-op, a low appraisal has a second effect. Co-op boards often set financing limits, such as a maximum loan-to-value ratio and post-closing liquidity requirements. If the buyer has to put in more cash to cover an appraisal gap, the remaining liquidity may fall below what the board requires, which can put board approval at risk. See our guide to buying a co-op.
Should You Waive the Appraisal Contingency?
In competitive markets, buyers sometimes waive appraisal protection to make their offer stronger. That can work if you have enough cash to cover a potential gap and still meet any board requirements, but it shifts the risk to you. Before waiving, estimate the likely gap using recent comparable sales, confirm the extra cash would not jeopardize board approval, and have your attorney explain exactly what protection remains in the mortgage contingency.
Sellers: What an Appraisal Contingency Means for You
An appraisal contingency gives the buyer a way out that sellers usually prefer to avoid. Sellers can limit the risk by pricing close to recent comparable sales, favoring buyers with larger down payments or appraisal-gap commitments, and keeping contingency periods short. See who pays closing costs in New York for how credits work if you agree to one.
Negotiating a contract? Our NYC real estate attorneys draft and negotiate mortgage and appraisal contingencies so buyers know when they can walk away and sellers know when a deal is firm.
Frequently Asked Questions
What is an appraisal contingency?
It is a contract clause that lets the buyer cancel or renegotiate if the lender’s appraisal comes in below the purchase price. Without it, the buyer may have to cover the shortfall in cash.
Are appraisal contingencies common in New York?
Not as a separate clause. Standard NYC purchase contracts use a mortgage contingency tied to getting a loan commitment. A separate appraisal contingency has to be negotiated.
Does a mortgage contingency protect me from a low appraisal?
Only in some cases, depending on the wording. If the low appraisal causes the lender to deny or reduce the loan commitment before the contingency date, the buyer may be able to cancel. Once a commitment is issued, the contingency is usually satisfied.
What happens if a co-op appraisal is low?
The loan is reduced, and the buyer needs more cash. That can push the buyer below the board’s post-closing liquidity requirements and put board approval at risk.
Should I waive the appraisal contingency?
Only if you can cover a likely appraisal gap in cash and still meet your lender’s and any board’s requirements. Have your attorney confirm what protection remains before you waive it.
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