What Is an Appraisal Gap, and How Do You Handle It?
Daniel ParkNo. 93
Updated
Key takeaways
- An appraisal gap is the difference between the contract price and a lower appraised value.
- Your lender bases the loan on the lower number, so the gap usually has to be covered in cash or negotiated.
- Buyers can offer to cover a set amount of any gap to strengthen an offer.
- Never promise more gap coverage than you can comfortably pay.
In competitive situations, buyers sometimes pay more than recent sales support. When the appraisal comes in lower, an appraisal gap appears. Here’s what happens next.
A quick example
| Amount | |
|---|---|
| Contract price | $700,000 |
| Appraised value | $680,000 |
| Appraisal gap | $20,000 |
| Loan with 10% down | Based on $680,000, not $700,000 |
In this example, the buyer would need to bring the $20,000 difference in cash on top of the planned down payment, unless the price changes.
Options when there’s a gap
- The seller lowers the price to the appraised value.
- Buyer and seller split the difference.
- The buyer covers the gap in cash.
- The lender reviews a reconsideration of value with better comparable sales.
- The buyer cancels, if the contract allows.
Appraisal gap coverage in offers
Some buyers add a clause promising to cover a gap up to a set amount, such as $10,000. It tells the seller the deal is less likely to fall apart. It also means you need that cash ready.
Daniel’s tip: Instead of an open-ended promise, cap your gap coverage at a number you’ve already set aside. A clear limit keeps you competitive and protected.
Learn how appraisers set value in the first place.
Frequently asked questions
Are appraisal gaps common now?
They’re less common when the market is calmer, but they still happen with multiple offers.
Can sellers avoid a gap?
Pricing in line with recent sales and sharing a list of upgrades with the appraiser helps.
Filed under Buying a Home, Selling Your Home
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