What Is an Appraisal Gap Contingency in Real Estate?

An appraisal gap contingency is a clause in a purchase agreement that protects the buyer if the home appraises for less than the offer price. It explains whether the buyer will cover the difference, how much they will pay, or whether they can cancel the contract if the appraisal comes in low.

✅ How an Appraisal Gap Contingency Works

When a buyer’s lender orders an appraisal, the home must appraise at or above the offer price for financing to be approved. If the appraisal comes in low, the buyer and seller face a price gap.

An appraisal gap contingency specifies what happens next:

  • Buyer covers the full gap (common in competitive markets)
  • Buyer covers part of the gap (e.g., up to $10,000)
  • Buyer can cancel if the gap is too large
  • Seller reduces the price to the appraised value
  • Both parties renegotiate repairs, credits, or price

A gap contingency gives clarity when the appraisal is lower than expected.

💡 Why Appraisal Gaps Matter

Appraisal gaps happen most often when:

  • The market is hot and buyers bid above list price
  • Comparable sales don’t support the offer price
  • The appraiser misses or undervalues improvements
  • Low inventory pushes buyers into multiple-offer situations

A gap contingency ensures both parties know what happens if the appraisal threatens the deal.

Learn more: What Is an Appraisal?

📍 FSBO Tip: Review Your Buyer’s Gap Coverage

FSBO sellers should look closely at how much of the appraisal gap a buyer is willing to cover:

  • Full gap coverage = strongest offer
  • Partial gap coverage = moderate protection
  • No gap coverage = highest risk of deal falling apart

If the buyer includes a financing contingency AND no gap protection, the deal is more likely to collapse during underwriting.

⚠️ What Happens If the Appraisal Comes in Low?

When the appraisal is lower than the agreed purchase price, you have several options:

  • Renegotiate the price with the buyer
  • Ask the buyer to cover the gap (partially or fully)
  • Offer seller concessions to offset buyer costs
  • Cancel the contract if contingencies allow it

Gap contingencies reduce uncertainty about which option applies.

Browse all definitions in our Real Estate Dictionary.

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