The Appraisal Contingency in Pennsylvania — What Happens When a Home Doesn't Appraise
The appraisal contingency protects buyers when a home's appraised value comes in below the agreed purchase price. In the current Bucks and Montgomery County market — where homes routinely sell $30,000 to $80,000 over asking — low appraisals are a real and regular occurrence. Understanding how they work, what options exist, and what appraisal gap coverage means is essential before you make an offer in this market.
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How the Appraisal Works in a Pennsylvania Transaction
When a buyer is financing a home purchase, their lender orders an independent appraisal to confirm the property's value supports the loan amount. If the appraised value equals or exceeds the purchase price, the transaction proceeds normally. If the appraised value is below the purchase price, the lender will only lend based on the appraised value — creating a gap between what the lender will fund and what the buyer agreed to pay.
What Happens When a Home Appraises Low in Pennsylvania
When a home appraises below the purchase price, the parties have several options: the buyer can make up the difference in cash, the seller can reduce the price to the appraised value, the parties can meet in the middle, or the buyer can terminate under the appraisal contingency and recover their earnest money.
Appraisal Gap Coverage in Competitive Markets
In the current market where offers routinely exceed asking price, buyers who want to win competitive offers sometimes include appraisal gap coverage — committing to pay a specific amount above the appraised value out of pocket. A buyer offering $680,000 on a home listed at $620,000 might include language stating they will cover up to $30,000 in appraisal gap. This tells the seller that a low appraisal won't kill the deal.
Appraisal Contingency Pennsylvania — FAQ
What is the appraisal contingency in Pennsylvania?
A clause in the Agreement of Sale that protects buyers if the home appraises below the purchase price. If the appraisal comes in low and parties cannot reach agreement on how to handle the gap, the buyer can terminate and recover their earnest money deposit.
What happens if a house doesn't appraise in Pennsylvania?
Options: buyer pays gap out of pocket, seller reduces price to appraised value, parties negotiate a middle ground, or buyer terminates under the appraisal contingency and recovers earnest money. The right outcome depends on each party's flexibility and motivation.
What is appraisal gap coverage in Pennsylvania?
Offer language where the buyer commits to paying a specified amount above appraised value out of pocket if the home doesn't appraise at purchase price. Used in competitive markets where offers exceed asking significantly. Tells the seller a low appraisal won't terminate the deal up to the covered amount. Requires the buyer to have the additional cash available.
Can I waive the appraisal contingency in Pennsylvania?
Yes — buyers can waive it to strengthen offers. Waiving means you proceed regardless of appraised value and accept full responsibility for any gap. Requires having the cash to cover a potential shortfall. Should be a deliberate decision made with full understanding of the financial exposure.