How can a buyer back out after waiving the appraisal contingency on a conventional loan?

A buyer can waive the appraisal contingency on a conventional loan and still exit the contract cleanly if the home appraises low, as long as they keep their financing contingency intact. This is one of the less-discussed backdoors in a real estate contract, and sellers who don't know about it can be genuinely blindsided.

Here's how it works. A buyer submits a conventional offer at $450,000. In the contract, they check the box waiving the appraisal contingency. That sounds like a firm commitment to pay the agreed price regardless of what an appraiser says. But they also keep their standard financing contingency, which says their obligation to purchase depends on receiving final written loan approval from their lender.

Now the appraisal comes in at $425,000, which is $25,000 below the contract price. The lender will only base the loan amount on the appraised value of $425,000, not the contract price. If the buyer has $25,000 in extra cash available, they can bring it to closing and the deal proceeds. If they don't, the lender's underwriting department reviews the file, determines that the loan no longer meets required lending guidelines at those terms, and issues a denial letter.

At that point the buyer shows you the official denial letter, cancels the contract under their financing contingency, and walks away with their entire earnest money deposit. You're back on the market. The appraisal waiver they wrote meant nothing because the financing contingency provided an alternate exit.

How to protect yourself: When a buyer waives the appraisal but keeps their financing contingency, ask for documented proof of liquid cash reserves sufficient to cover a potential appraisal gap on top of their down payment and closing costs. Not just a pre-approval letter. Actual bank or investment account statements showing available funds. If the buyer can genuinely cover the gap in cash, the waiver has real meaning. If they can't, the waiver is largely cosmetic.

Working with your closing attorney or title company, you can also include a specific appraisal gap addendum that clearly states the exact dollar amount the buyer agrees to pay out of pocket if the appraisal comes in below the contract price. This creates an enforceable commitment rather than relying on the implied protection of an appraisal waiver that can be circumvented through the financing contingency.