Explore your options for managing appraisal gaps

An appraisal gap happens when a home appraises for less than the purchase price. If you offered $450,000 but the appraisal comes in at $430,000, you have a $20,000 gap. The lender will only loan based on the appraised value, so you need to cover the difference, renegotiate the price, dispute the appraisal or walk away. In competitive markets, buyers often include appraisal gap coverage clauses agreeing to cover some or all of a potential gap.

Understanding Appraisal Gaps

What Creates an Appraisal Gap

Common causes:

• Competitive bidding drives price above market value
• Rapidly appreciating market (appraisals lag)
• Unique property with few comparables
• Condition issues reduce value
• Appraiser uses outdated or distant comparables

Why It Matters

Lender’s perspective:

• Lender loans based on the lower of purchase price or appraised value
• Don’t want to lend more than collateral is worth
• Gap means buyer must make up the difference

Example:

• Purchase price: $450,000
• Appraisal: $430,000
• Gap: $20,000
• Loan amount (at 90% LTV): $387,000 (based on $430,000)
• Your expected loan: $405,000 (based on $450,000)
• Extra cash needed: $18,000

Your Options When Appraisal Is Low

Option 1: Renegotiate the Price

Ask seller to reduce price:

• To appraised value
• To split the difference
• Some reduction

Best when:

• Seller is motivated
• Market is cooling
• You have appraisal contingency
• Seller’s alternatives are limited

How to approach:

• Share appraisal with seller
• Explain lending constraints
• Propose new price
• Be prepared to negotiate

Option 2: Cover the Gap

Pay the difference in cash:

• Increase your down payment
• Bridge the gap yourself
• Keep the deal together

Example:

• Gap: $20,000
• Your planned down payment: $45,000
• New down payment needed: $65,000

Best when:

• You have extra cash
• You believe in the property’s value
• Competitive market with few alternatives
• Property has unique value to you

Option 3: Split the Difference

Meet in the middle:

• Seller lowers price some
• You cover part of gap
• Both parties compromise

Example:

• Gap: $20,000
• Seller reduces: $10,000
• You cover: $10,000

Common negotiation outcome when both parties want the deal to work.

Option 4: Dispute the Appraisal

Challenge the appraisal if:

• Appraiser missed comparable sales
• Factual errors exist
• Condition was misrepresented
• Upgrades weren’t valued properly

Process:

• Request reconsideration of value from lender
• Provide additional comparables
• Document errors or omissions
• Appraiser reviews and may revise

Success rate: Low, but worth trying if you have valid points

Option 5: Get a Second Appraisal

Order another appraisal:

• Through a different lender
• Or request second opinion

Considerations:

• Costs $400-$600 more
• No guarantee of different result
• Takes additional time
• Some lenders don’t allow

Option 6: Walk Away

Use your appraisal contingency:

• Get earnest money back
• Cancel the contract
• Find another property

When to consider:

• Gap is too large
• Can’t afford extra cash
• Seller won’t negotiate
• You believe appraisal is accurate

Appraisal Gap Coverage Clauses

What They Are

In competitive markets, buyers offer to cover appraisal gaps in their purchase offer:

• Promise to pay up to $X if appraisal is low
• Makes offer more attractive to sellers
• Reduces seller’s risk

How They Work

Example clause: “Buyer will cover any appraisal gap up to $25,000.”

If appraisal is:

• $20,000 low: Buyer covers $20,000
• $30,000 low: Buyer covers $25,000, must negotiate $5,000

Types of Coverage

Full gap coverage: “Buyer will cover any appraisal gap.” (Risky—unlimited exposure)

Capped gap coverage: “Buyer will cover up to $25,000 of any appraisal gap.” (Limited, calculable risk)

Up to X% of purchase price: “Buyer will cover appraisal gap up to 5% of purchase price.”

Before Offering Gap Coverage

Consider:

• Do you have the cash available?
• How competitive is the market?
• What’s the property worth to you?
• What’s your maximum exposure?

Disputing an Appraisal

Valid Reasons to Dispute

Issue	Example
Factual errors	Wrong square footage, room count
Missing comparables	Recent sales appraiser didn’t include
Condition misstatement	Upgrades not properly valued
Wrong comparable selection	Used distant or dissimilar homes
Market changes	Recent price increases not reflected

The Dispute Process

Step 1: Review the appraisal carefully

• Look for errors
• Note missing information
• Identify better comparables

Step 2: Prepare your case

• Document specific issues
• Gather supporting evidence
• Get agent’s help with comparables

Step 3: Submit reconsideration request

• Through your lender
• Include supporting documentation
• Be specific about concerns

Step 4: Appraiser reviews

• May revise value
• May stand by original
• Usually takes 3-7 days

What Works in Disputes

Strongest arguments:

• Factual errors (square footage, room count)
• Very recent comparable sales
• Documented condition/upgrade issues

Weak arguments:

• “I think it’s worth more”
• Emotional appeals
• Questioning appraiser’s judgment without evidence

Preventing Appraisal Gaps

Before Making an Offer

Research thoroughly:

• Study recent comparables yourself
• Understand market conditions
• Know how much above asking homes sell for
• Set a maximum true value in your mind

Consider offering limits:

• Offer what you can afford if gap occurs
• Don’t offer $50,000 over if you can’t cover gap
• Build gap coverage into offer price calculations

During the Transaction

Prepare for appraisal:

• Provide list of upgrades to appraiser
• Have agent share recent comparables
• Ensure access is clear
• Property should show well

Strategic timing:

• Newer sales = better comparables
• Avoid gaps between contract and appraisal

Market Conditions and Appraisal Gaps

Seller’s Markets

More common:

• Bidding wars push prices up
• Appraisals lag market
• Gaps are frequent
• Buyers often cover gaps

Buyer’s Markets

Less common:

• Prices at or below value
• Appraisals usually support price
• Sellers more likely to reduce if gap occurs

Rapidly Appreciating Markets

Highest gap risk:

• Values increasing monthly
• Comparables are already “old”
• Recent sales don’t reflect current prices
• Gaps can be significant

Financing Considerations

LTV Impact

Low appraisal affects loan-to-value:

• Loan amount based on lower value
• You need more cash
• May affect PMI requirements

Example:

• Offer: $400,000

• Planned 10% down: $40,000

• Loan: $360,000

• Appraisal: $380,000

• Loan at 90% of $380K: $342,000

• Extra cash needed: $18,000 (to cover gap)

• Plus original down payment based on price

Down Payment Recalculation

Scenario	Purchase Price	Appraisal	Down Payment	Gap Coverage	Total Cash
No gap	$400,000	$400,000	$40,000	$0	$40,000
With gap	$400,000	$380,000	$40,000	$20,000	$60,000

PMI Considerations

If appraisal is lower:

• Your LTV based on lower value
• May affect PMI rate or requirement
• More equity position initially

Working With Your Agent

How Agents Help

Before offers:

• Market analysis
• Comparable research
• Realistic pricing guidance

During negotiations:

• Presenting dispute evidence
• Negotiating with seller
• Finding solutions

If gap occurs:

• Strategy development
• Seller negotiation
• Problem-solving

Agent Insights

Experienced agents know:

• Which properties might appraise low
• How to set expectations
• When to walk away
• How to structure gap coverage

Frequently Asked Questions

What is an appraisal gap?

The difference between your purchase price and the appraised value when the appraisal is lower. If you offered $450,000 and appraisal is $430,000, you have a $20,000 gap.

Who pays for the appraisal gap?

Either the buyer (covers with additional cash), the seller (reduces price), or both (split the difference). The lender won’t cover the gap—they only loan based on appraised value.

Can I walk away if the appraisal is low?

Yes, if your contract includes an appraisal contingency. You’ll get your earnest money back. Without the contingency, walking away may mean losing your deposit.

Should I offer appraisal gap coverage?

In competitive markets, it makes your offer stronger. Only offer what you can actually pay and are comfortable risking. Unlimited gap coverage is dangerous.

Can the appraisal be challenged?

Yes. Request a reconsideration of value through your lender with evidence of errors or additional comparables. Success isn’t guaranteed, but valid disputes sometimes result in revised values.

How common are appraisal gaps?

Very common in hot seller’s markets with multiple offers. Less common in balanced or buyer’s markets. The more competitive the bidding, the higher the gap risk.

Does the seller have to lower the price?

No. The seller can refuse and you can walk away (if you have contingency). Motivated sellers often negotiate; sellers with multiple offers may not.

Related Articles

• What Is a Home Appraisal? Why It Matters for Your Mortgage
• Home Inspection Checklist: What Inspectors Look For
• Closing Costs Explained: What You’ll Pay and How to Reduce Them
• Down Payment Assistance Programs: Free Money for Home Buyers