In a buyer's offer that includes an appraisal contingency, what happens if the appraisal is lower than the purchase price?

When a buyer includes an appraisal contingency in their offer, it provides them with a measure of protection regarding the property's value. If the appraisal comes in lower than the agreed purchase price, the seller has the opportunity to respond to this situation. One of the most common outcomes is that the seller may choose to agree to reduce the purchase price to match the appraised value. This option allows the transaction to move forward without resecuring financing contingencies or leading to potential disputes.

The appraisal contingency acts as a safeguard for the buyer, offering them the flexibility to negotiate or reconsider the offer based on the property's determined value. In many cases, if the appraisal is lower, the resulting negotiation may not only lead to a price reduction by the seller but might also prompt discussions about additional financing options or structural adjustments to the offer if the buyer is still interested in proceeding at a different terms.

The other potential options reflect misconceptions about the buyer's flexibility in this scenario. The buyer isn't simply obligated to pay the original price or accept the appraisal value without discussion. Likewise, while a buyer might consider withdrawing their offer, it is not the most direct or common resolution to this situation, especially given the nature of appraisal contingencies which are designed to facilitate negotiations following such an event.