What Is An Appraisal Gap?


An appraisal gap is the difference between the sale price of a home and the fair market value of the home as determined by an appraiser. The gap can be more or less than the list price, but either way, the difference between the appraised value of the home and the sale price must be resolved. An appraisal gap does not mean a sale can’t go through, it just means that the buyer and seller must either renegotiate the sale price or one party must pay the difference.

In the real estate market, there are two figures that matter more than any others: the appraised value of a home and the agreed-upon purchase price of the home. Sellers want to make sure they get a fair value for their property, and buyers want to pay a fair purchase price and down payment.

However, these two figures don’t always line up, which creates an appraisal gap. So what does that mean for the sale of a home? Keep reading to learn what appraisal gaps are and what options sellers and buyers have when they arise.

What is an appraisal gap?

An appraisal gap is the difference between the appraised value of a home, as determined by a professional real estate appraiser, and the purchase price a buyer and seller agree to sell the home for. In other words, an appraisal gap occurs when the market value of the home is different than the price that the parties agree to. Gaps are extremely common in real estate sales, especially in a seller’s market (when buyers outnumber sellers).

A higher home appraisal (when the home is appraised for more than the buyer offers) can be negotiated with the seller. That said, sometimes the buyer might be required to pay the difference out of pocket. The opposite can also be true. If a home receives a low appraisal (less than the buyer offers to pay), the seller may negotiate with the buyer or make up the difference themselves.

Often, and depending on the condition of the real estate market at the time of contracting, purchase agreements will have one of two appraisal gap clauses. One type of appraisal gap clause (discussed below) protects the buyer from buying a home with a low appraisal. The other type protects the seller from renegotiating a contract price based on a gap.

How does the appraisal process work?

Lenders require licensed real estate appraisers to evaluate the value of a home so they know they’re lending the appropriate amount of money to buyers. This way the buyers know how much work may be necessary for the property, and lenders ensure the property will cover the loan amount if the borrowers default.

Real estate appraisers evaluate homes based on their condition and recent sales of similar homes in the area. They rely on a systematic valuation process, which considers the safety, livability, number of beds and baths, and functionality of the home. Comparable sales of homes in the area are used as a base to determine the home’s appraised value.

How an appraisal gap works

Imagine you’re a buyer interested in a house with a $300,000 purchase price, and you make an offer for the full amount, which the seller accepts. Your lender then appraises the home and determines that the house’s appraised value is actually $250,000. The value determined by the appraiser is the loan amount your lender will give you to buy the home.

In this example, the home received a low appraisal, making the gap $50,000. Since you already agreed to pay the seller the $300,000 asking price, the remaining $50,000 difference needs to be dealt with somehow for the sale to move forward.

When an appraisal is too low, it’s important to ask a few questions. Mark Poechman, managing partner of Bourgeois Brooke Chin Associates, advises you to first wonder what’s happening in the market for the appraisal to be so low.

“If an appraisal is low, and a market is rising rapidly, there is more risk of an appraisal gap since appraisals are required to be based on confirmed, precedent/historical information,” he says. “This means that if a market is rising by 5% a month, and the comparables that were used are 2-3 weeks old, there may be a 2-3% gap between what the appraiser can prove, and what’s happening on the ground in the market.”

IMPORTANT! Remember, appraisal gaps can work both ways. The appraised value could end up being less or more than the sale price. In this example, the buyer is responsible for the additional funds not covered by the lender’s loan amount.

Options when an appraisal gap comes up

To new home buyers, appraisal gaps seem like a big roadblock. Fortunately, sellers and prospective buyers have options to help move the sale along. Negotiation and making up the difference are the two biggest strategies for getting past them.


Negotiating is a huge part of homebuying, so asking the seller or buyer to come back to the negotiation table when a gap comes up is not uncommon. Fully renegotiating the cost of a home to eliminate the gap is one option, but you don’t have to start from scratch. Sometimes, sellers and buyers will renegotiate a home purchase contract just lower or higher enough that the party that needs to cover the appraisal gap can afford to do so.

In other words, you can ask the seller or buyer to meet you halfway or split the difference. That way, both parties still have room to make the best deal and still complete the sale.

Pro Tip

Just keep in mind that, in a seller’s market, there are more buyers willing to pay the difference in cash. A seller may have a better offer lined up that is easier and more lucrative than renegotiating yours.

Paying the difference in cash

If your seller or buyer cannot match the appraisal value exactly, the party responsible for covering the gap can simply pay the difference in order for the sale to go through. If you already renegotiated the contract amount, the difference may not be so bad.

Some contracts have appraisal guarantee clauses that require a buyer to cover the difference between the appraised value and the price in the purchase agreement. This practice is common in seller’s markets when there are lots of offers being made on the home.

Refinancing and requesting a new appraisal

Successfully disputing an appraisal is hard and requires a strong showing that the original appraisal price was incorrect. You have to prove that the appraiser made big mistakes, such as failing to properly assess the market and disvaluing the property. If you succeed, you can ask your lender for new financing and a redone appraisal. On the other hand, you can hire an independent appraiser to perform an appraisal review and check it for accuracy.

Keep in mind, however, that a new appraisal does not guarantee a favorable appraisal. Be sure to ask your real estate agent for their opinion before proceeding with this option. In addition, the process of having a home appraised is time-consuming and may be more trouble than it’s worth for an impatient seller.

If you have an impatient seller, see if you can get pre-approved for a mortgage using the comparison tool below as a jumping-off point.

Walking away

If none of the above options are feasible, don’t be afraid to walk away from a sale. Paying more for a property than it’s worth can be a bigger risk than starting new negotiations elsewhere. Plus, leaving the negotiation table is definitely the safest bet when your sale agreement has an appraisal contingency clause written into it.

Appraisal contingency Clauses

An appraisal contingency clause is a type of appraisal guarantee provision in a home sale contract that gives the buyer a way out if the appraised value of the home does not match the agreed-upon sales price. In a competitive market (where homes are bought and sold at a rapid pace), some buyers waive these clauses to increase the chances that their offers will be accepted by the seller. The benefit of these clauses is they allow the buyer to withdraw from the contract without losing the earnest money they deposited on the property.

In order to get out of your contract using the contingency clause, you have to withdraw within the appraisal contingency period (the time period stipulated in the clause to withdraw). If there’s no contingency clause in the contract, the seller can keep your earnest money, though these provisions are less common in a seller’s market. Contrast these with appraisal gap coverage clauses, which do the opposite.

Appraisal gap coverage clause

An appraisal gap coverage clause binds the parties to pay the amount in the purchase contract even if the appraised value of the home is lower. It works like an insurance policy for the seller.

These are common when home buyers are few and far between, and sellers want to make sure the price in their purchase contract is locked in even if the value of their home changes between signing and closing.


What does a $5,000 appraisal gap mean?

A $5,000 appraisal gap means that the home was appraised, either more than or less than, the contract price by $5,000. For example, if the buyer and seller agree to a contract price of $250,000, but the home is appraised at $255,000 or $245,000, there is a $5,000 appraisal gap.

Should a buyer cover an appraisal gap?

A buyer should seriously consider covering an appraisal gap if they’re shopping for a home in a seller’s market (when there are lots of prospective buyers vying for the same home). By offering to cover the gap, a buyer can increase their chance of getting the home over other potential buyers.

This is because sellers want to get their homes sold quickly, and renegotiating prices can take some time. If a buyer offers to cover the gap, they stand out as the best deal for the seller by closing the sale quickly and paying the highest price for the home.

Key Takeaways

  • An appraiser evaluates homes and determines their fair market value for a lender, who then lends that amount to a prospective buyer to buy the home.
  • Appraisals are based on a number of factors, including livability and the home’s location.
  • A lender will only lend as much as the appraiser values the home at, so an appraisal gap arises when that figure is different than the offer price.
  • It’s possible to move forward with a sale even if there is an appraisal gap, most often by renegotiating the sales price or by paying cash to make up the difference.
  • Some contracts for sale have provisions that protect buyers from paying more than the home is worth (appraisal contingency clauses). However, others bind them to pay the difference between the appraised value and the agreed-upon amount (appraisal gap coverage clauses).
View Article Sources
  1. What is an Appraisal Gap on a Home Purchase? — Colorado Department of Regulatory Agencies
  2. What are appraisals and why do I need to look at them? — Consumer Financial Protection Bureau
  3. How Long is an Appraisal Good For? — SuperMoney
  4. How Long Does an Appraisal Take? Here’s What to Expect — SuperMoney
  5. Should I Sell My House Now Or Wait Until Next Year? — SuperMoney
  6. Is This a Good Time to Buy a House? — SuperMoney
  7. The Benefits of Buying a House in Your 20s — SuperMoney
  8. How To Buy a House In California — SuperMoney
  9. How To Buy Foreclosed Homes With No Money — SuperMoney
  10. Can You Use A Personal Loan To Buy A House? — SuperMoney
  11. How to Finance a House — SuperMoney
  12. How to Buy a House — SuperMoney