Appraisal gaps are one of those things that sucker punch homebuyers right in the face. You find the home, make a solid offer, it gets accepted—you’re riding high. Then boom…the appraisal comes in low. Now your lender’s like, “Hey, we’re not covering the full offer price, because the bank says the house isn’t worth it.” So you’re stuck. Pay the difference out of pocket or the deal dies. This mess between the offer and appraisal value? That’s the appraisal gap. And yeah, it hits different when it’s your money on the line. So let’s talk straight.
What Is an Appraisal Gap?
The appraisal gap is the difference between what a home appraises for and the purchase price you agreed to in your offer.
Say you offer $500,000 on a home. It gets accepted. Then the appraisal report lands at $480,000. You now have a $20,000 appraisal gap.
- You’re under contract for $500,000
- But the banks says it’s only worth $480,000
- Lender won’t give you a loan based on $500,000—they’ll give you a loan based on $480,000
That $20K shortfall? Either you make it up—fast—or the deal’s toast.
Why Does This Happen?
People get heated, and I get why. “Why won’t the bank trust the market value? I paid what the seller asked!” Yeah, but here’s the thing…
Banks don’t lend based on what you’re willing to pay. They lend based on what the home is actually worth—in their eyes. And that’s what the appraiser determines.
Appraisal gaps get more common when:
- Home values spike fast (like during bidding wars)
- Inventory is low and buyers get desperate
- Recently sold comps haven’t caught up to market prices
I’ve seen people offer $50K over list because they just really wanted that backyard. And guess what? Appraisers don’t care about your emotional attachment.
Who Pays the Appraisal Gap?
This is where things get dicey. If there’s a gap, someone’s gotta cover it—because lenders won’t.
Here are your options:
- Buyer pays it out of pocket – Comes straight out of your bank account, on top of your down payment.
- Buyer and seller split it – If the seller really wants the deal to close, they might split the gap with you.
- Seller drops the price – Rare, but possible if the seller is motivated or appraisal was wildly off.
- Renegotiate or walk away – If there’s an appraisal contingency in your contract, you can bounce or ask for better terms.
I’ve had clients bring $10K cash to the table to keep a deal alive. Others fought it and got the price lowered. You have options—but speed and clarity matter.
How Much Is Too Much of a Gap?
I’ll shoot you straight. A $5,000 appraisal gap? Not a big deal in most deals. But $30K, $40K, $50K+? That’ll hurt. Especially if buyers already maxed out their down payment and closing costs. You have to ask yourself:
- How badly do I want this house?
- Do I have cash reserves to cover this?
- What’s my break-even if I overpay?
Short answer is: Not all appraisal gaps are worth fighting for. Sometimes walking is stronger than staying.
Can I Avoid an Appraisal Gap?
You can’t 100% avoid it. But you can play smarter so you don’t get blindsided.
How? Glad you asked.
- Know the comps – Don’t blindly offer $50,000 over asking. Look at what’s actually sold nearby in the last 90 days. You get that data from your agent.
- Leave room in your budget – Don’t go all-in on the purchase price. Save a reserve in case a gap pops up.
- Use an appraisal contingency – This gives you the option to back out or renegotiate if the appraisal comes in low. Crucial in hot markets.
- Talk to your lender early – Ask what happens if there’s a gap. Know limits before it becomes a deal-breaker.
realpha has more tips on prepping your finances and knowing what lenders look at. Don’t fly blind out here.
Real Story: Appraisal Gap Wrecked a Good Deal
Let me paint this real quick. My guy Joe offered $460K on a house listed at $450K. Seller took it. Everyone high-fived. Then the appraisal dropped in at $430K. Ouch. That $30K gap? The seller wouldn’t budge. Joe didn’t have $30K laying around, and without an appraisal contingency, he was stuck or losing the earnest money deposit. We talked. He walked. Three weeks later, that same house came back to market at $429K. New buyer snagged it for cheaper…just because Joe didn’t protect himself. No judgment—just facts.
What About Appraisal Gap Coverage?
There’s this thing called an appraisal gap guarantee or coverage. Basically, the buyer promises upfront to cover the gap—up to a certain dollar amount. Say you’re offering $500K on a house you know might only appraise for $480K. You include something like: “Buyer agrees to cover appraisal gap up to $20,000 out of pocket.” This makes your offer sexy to sellers. You’re telling them, “No surprises later. We’re closing.” But heads up—don’t write a check your bank account can’t cash. Only promise what you can actually afford.
Appraisal Contingency vs Appraisal Gap Coverage
Let’s make it plain:
| Appraisal Contingency | Appraisal Gap Coverage |
|---|---|
| Protects buyer if appraisal comes in low | Buyer agrees to cover all/part of difference if it comes in low |
| You can renegotiate or walk if value isn’t there | You’re locked in—less wiggle room |
| Seen more in cooler markets | Seen more in competitive bidding wars |
One’s defense. One’s offense. Which one’s right for you? Depends on how bad you want that house and how much cash you’ve got on deck.
What Happens to the Loan?
Your mortgage loan is based on either:
- The purchase price
- Or the appraised value—whichever is lower
If the appraisal comes in low, the loan shrinks. Period.Lenders don’t change the rules just because you offered more. They protect their risk by capping the loan to value (LTV). So yeah…a $500K purchase with a $480K appraisal could mean you suddenly owe a much higher down payment.
If you’re using FHA or VA loans, it’s even trickier. Those loans have stricter rules around appraisals and loan value. Make sure your lender walks you through it line by line.