In a nutshell:
As long as you follow all the terms and deadlines of your offer contract, if your home appraises for below the offer price, you're able to cancel your offer and receive your earnest money deposit back. The other option is to renegotiate the home price with the seller, or the buyer can come up with the additional funds to make up the difference.
What is a home appraisal, and what happens afterwards?
During the closing process & your appraisal contingency, buyers with mortgage loans will often need a home appraisal. This is when a third party, usually hired by the buyer's lender, evaluates the fair-market value of the home to ensure that the home is worth the price and a lender isn't "over-paying" for a place.
If a property appraises at or above the offer price, the closing timeline continues as usual.
But, if the property appraises for an amount below the offer price, you can use your appraisal contingency option to veto the whole transaction – with no penalty.
If you're still interested in purchasing the property and continuing your offer, someone must make up the difference. In lukewarm markets or properties that have no other offers, the seller might reduce the price of the property to facilitate the sale.
However, if there are multiple offers or a back-up offer to rely on, a seller could demand that the buyer cover the extra amount if the appraisal comes in lower than expected.
It is imperative that the appraisal gets ordered immediately upon acceptance to avoid delays. A good rule of thumb is about 14 days, but it can vary from 5 to 21 days. Always consult your lender before shortening the appraisal contingency period.