Inspection Scheduled
Contract terms

Inspection contingency and appraisal contingency, side by side

Both are escape hatches written into a purchase contract. They open for different reasons, on different schedules.

What is the difference between the two contingencies?

An inspection contingency makes your purchase depend on being satisfied with the home's condition, while an appraisal contingency makes it depend on the home appraising at or above an agreed figure, usually the price.

Both are clauses in your purchase contract. Wording, deadlines and remedies vary by state and by the form your agent uses. Your contract controls, not any general description, including this one.

Inspection contingency

Am I satisfied with its condition?
Tied to
The home inspection you arrange
Protects against
Defects and safety problems
Usual timing
Early, often the first deadline
Typical outcomes
Repairs, credits, price change or cancel

Appraisal contingency

Is it worth the price?
Tied to
The appraisal the lender orders
Protects against
A value below the price
Usual timing
Later, after the report arrives
Typical outcomes
Renegotiate, cover the gap or cancel

What does an inspection contingency let a buyer do?

It gives you a set period to inspect the home and, if you are not satisfied, to negotiate or walk away without losing your deposit.

The CFPB describes it as the right to cancel without penalty when the inspection results are unsatisfactory, and notes that repairs are open to negotiation, though a seller may decline to pay for them. HUD's inspection notice adds that asking for an inspection early is what may let you make the contract contingent on its results in the first place.

What does an appraisal contingency let a buyer do?

It protects you if the appraised value comes in below the price, typically by letting you renegotiate, cover the gap, or cancel under the terms of the clause.

A low value hurts because, under Fannie Mae's Selling Guide, the property value on a purchase is the lower of the sales price or the appraised value. A shortfall usually means more cash at closing unless something changes. You will see the number: for a first lien mortgage, the CFPB says the lender must send you a copy promptly and no later than three business days before closing.

How do the deadlines usually line up?

The inspection contingency usually expires first, and the appraisal contingency runs later because it depends on the lender ordering the report.

Watch that gap. By the time the appraisal arrives, the inspection window has often closed. Condition and value get settled in separate rounds.

Questions

Common questions

Does an appraisal contingency protect me from defects?
Not directly. It is about value. Condition problems are what the inspection contingency is for, although an appraiser may flag a condition that affects value or loan eligibility.
Is an appraisal contingency the same as a financing contingency?
No. They are related but separate clauses. A financing contingency is about getting the loan approved, while an appraisal contingency is about the value figure. Some contracts combine or link them.
What does waiving a contingency mean?
It means giving up that particular way out of the contract. Waiving the inspection contingency does not stop you from inspecting for information. Waiving the appraisal contingency means a low value no longer gives you that exit.
Keep reading

More on this topic

References

Sources

  1. Schedule a home inspection, Consumer Financial Protection Bureau
  2. For Your Protection: Get a Home Inspection (form HUD 92564 CN), U.S. Department of Housing and Urban Development, Federal Housing Administration
  3. Do I have the right to receive a copy of my home appraisal?, Consumer Financial Protection Bureau
  4. Selling Guide B2-1.2-01, Loan to Value (LTV) Ratios, Fannie Mae