An appraisal contingency is a position in the sales contract that allows a home buyer to back out of the contract if the home is appraised for less than the sales price that is declared in the sales contract.
In the event that the property is appraised at or above the purchase price, then as a buyer, you are good to go with your lender.
If the appraisal value comes lower than the purchase price, then as a buyer you have three options. The first option, you can come back to the buyer and renegotiate the difference between the purchase price and the appraisal value.
The second option, you as a buyer can come up with that difference amount. And the third option is where if the buyer and seller cannot come to an agreement, the buyer can back out of the contract and have your earnest money refunded.
Lastly, as the buyer and the seller, you can challenge the appraiser if you can find better comparables or if there is any material error or problem in the way the appraisal was conducted.