Appraisal Contingency Clauses Serve No Operative Function in All-Cash Real Estate Deals

An appraisal contingency clause has no operative function in an all-cash real estate transaction because the buyer’s obligation to close is not conditioned on financing.

An appraisal contingency allocates financing risk. In a financed transaction, a lender requires an appraisal, and the amount or availability of the loan depends on the appraised value of the property. If the appraisal is insufficient, the contingency permits renegotiation or termination without default by the buyer.

In an all-cash transaction, no lender is involved and no appraisal is required to obtain funds. Because there is no financing condition to protect, a standard appraisal contingency does not perform its typical contractual function and allocates no inherent financing risk between the parties.

This does not prevent the parties from making valuation relevant in a cash transaction. However, doing so requires an expressly drafted provision that assigns specific legal consequences to the appraisal, rather than reliance on a standard financing-based contingency.

Drafting Implication: Including a standard appraisal contingency clause in an all-cash deal is unnecessary and potentially confusing. If valuation is intended to affect the transaction in a cash deal, it must be addressed expressly through a separately drafted provision.

Scope: This rule applies to residential and commercial all-cash purchase agreements. A buyer may obtain an appraisal for informational purposes, but it has no contractual effect unless the agreement explicitly assigns legal consequences to it.