Appraisal Gap
An appraisal gap occurs when the appraised value of a property comes in lower than the agreed-upon purchase price, creating a difference — or gap — that must be addressed before closing.
When this happens, the lender will only approve a loan amount based on the appraised value, not the contract price. The buyer is then responsible for covering the difference out of pocket, renegotiating the price with the seller, or walking away if the contract includes an appraisal contingency. Learn more about what happens if your home appraises low.
In competitive markets, some buyers include an appraisal gap clause in their offer, committing to cover a certain amount of the gap with their own funds. This can make an offer more attractive to sellers but carries financial risk if the gap is larger than expected.
Why This Matters: An appraisal gap can catch buyers off guard if they are not prepared. Knowing what it is — and having a strategy in place before you make an offer — protects you from scrambling at the last minute. Having earnest money and reserves lined up gives you more flexibility.
Common question
What happens if my appraisal comes in low?
You can renegotiate the purchase price with the seller, pay the difference out of pocket, or cancel the contract if you have an appraisal contingency. Your loan officer can help you evaluate your options.
What is an appraisal gap clause?
A clause in your offer that commits you to covering a certain dollar amount of any gap between the appraised value and the purchase price. It strengthens your offer in competitive situations but means you need the cash to cover it.
Related Mortgage Terms
Worried about the appraisal coming in low? We can help you plan for that before you make your offer.
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