What does the term "appraisal contingency" mean?

The term "appraisal contingency" refers to a specific clause included in a real estate purchase agreement that protects the buyer. This clause stipulates that the buyer has the right to back out of the transaction if the property does not appraise for at least the agreed-upon purchase price. In essence, it ensures that the buyer does not pay more for the property than it is objectively valued at according to the appraisal.

This is an important safeguard for buyers, as it means they will not be obligated to proceed with the purchase if the appraisal indicates that the property is worth less than what they have agreed to pay. If the appraisal falls short, the buyer can negotiate with the seller, seek a price reduction, or withdraw from the deal altogether without penalty.

The other options presented involve different concepts that do not align with the specific nature of an appraisal contingency. For instance, some options discuss rights or requirements not specifically tied to appraisals, which is the central focus of the correct choice. Thus, the significance of an appraisal contingency lies in its role as a protective measure for buyers during the real estate transaction process.