Quick Answer
An appraisal gap is the difference between the price you agreed to pay and a lower appraised value. Lenders lend against the appraised value, not the contract price — so if a home is under contract at $350,000 and appraises at $340,000, that $10,000 gap must be covered by the buyer in cash, renegotiated, or the deal restructured.
- What it is
- Contract price minus a lower appraised value
- Who covers it
- Usually the buyer, in cash
- Options
- Renegotiate, pay the gap, or cancel
- Protection
- Appraisal contingency
- Gap coverage
- A promise to cover up to a set amount
Appraisal gaps catch buyers off guard because they assume the agreed price is the value. Lenders don't. They lend against an independent appraisal, and when those two numbers disagree, the buyer is the one holding the difference.
Why Gaps Happen
Most commonly in competitive situations. When multiple offers push a price above recent comparable sales, the appraiser — who works from those same comparables — may not support the number. Gaps also appear on unusual properties with few true comps, and on homes with extensive upgrades that comps don't reflect.
Your Options When It Happens
Renegotiate. Ask the seller to reduce to the appraised value. Whether this works depends entirely on their alternatives — if backup offers exist, they may decline.
Pay the difference in cash. You bring the gap to closing on top of your down payment. This is real additional cash, not financed.
Meet in the middle. Very common: the seller drops some, you cover some.
Cancel. If you have an appraisal contingency and you're inside the deadline, you can withdraw and recover your earnest money.
Dispute it. Occasionally an appraisal misses relevant comparable sales or upgrades. Your agent and lender can submit a reconsideration of value. It doesn't often change the outcome, but it costs little to try when there's a genuine factual omission.
Appraisal Gap Coverage in Offers
In competitive markets, buyers sometimes include appraisal gap coverage — a written commitment to cover a shortfall up to a stated amount. Offering to cover up to $10,000, for example, tells the seller their deal won't collapse over a modest appraisal miss.
Used carefully this is a smart, bounded tool: you're quantifying and capping your exposure. Waiving the appraisal contingency entirely is different and far riskier, because there's no ceiling on what you might owe.
What It Means for Sellers
If you're selling, this is a strong argument for pricing accurately from the start. Accepting a dramatically over-market offer feels good until it fails to appraise and you're renegotiating weeks later with days-on-market accumulating. Our pricing guide covers this, and a free CMA is the place to start.
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Frequently Asked Questions — Appraisal gap
What happens if a house appraises for less than the offer?
The lender will only lend against the appraised value, so the buyer must cover the difference in cash, the parties renegotiate the price, they split the difference, or the buyer cancels if an appraisal contingency applies. Renegotiating is common, but the seller's willingness depends on whether they have backup offers.
Who pays the appraisal gap?
Usually the buyer, in cash at closing, on top of their down payment. It cannot be financed, because the loan is limited by the appraised value. Sellers sometimes agree to reduce the price instead, or the two sides meet in the middle.
Should I offer appraisal gap coverage?
It can meaningfully strengthen an offer in a competitive situation, and capping it at a specific dollar amount keeps your exposure bounded and known. That is very different from waiving the appraisal contingency entirely, which leaves no ceiling on what you might have to cover.