What type of contingency allows a buyer to terminate the contract if the property doesn't appraise at the agreed-upon price?

An appraisal contingency is a provision in a real estate purchase agreement that protects the buyer by allowing them to terminate the contract if the property does not appraise at the agreed-upon price. This type of contingency is crucial because it ensures that the buyer is not obligated to proceed with the purchase if the property's appraised value is lower than the offer price, which could indicate the buyer is overpaying.

In a transaction, if an appraisal comes in lower than expected, the buyer can either negotiate with the seller to lower the sale price or, if the seller is unwilling to budge, the buyer can back out of the deal without penalty. This mechanism is a safeguard for the buyer's financial interests, as it ensures they are investing in a property that is valued appropriately according to market conditions.

Other types of contingencies, such as financing, inspection, and loan contingencies, serve different purposes. Financing contingency typically relates to the buyer securing a mortgage, while inspection contingency allows for an evaluation of the property’s condition. Loan contingency specifies the buyer's ability to obtain a loan. While these are important in their own right, they do not specifically address concerns regarding property valuation in relation to the agreed-upon purchase price.