What Is an Appraisal Gap in Real Estate?

An appraisal gap is the difference between a home’s appraised value and the price a buyer has offered to pay. If the appraisal comes in lower than the contract price, a gap exists—and the lender will not finance the full amount unless the buyer increases their down payment or renegotiates the purchase.

Appraisal Gap: Simple Definition

An appraisal gap is the shortfall between the appraiser’s valuation and the agreed-upon purchase price. Because lenders base loans on the appraised value—not the contract price—the gap must be addressed before the loan can be approved.

For example, if a buyer offers $400,000 and the home appraises for $380,000, the appraisal gap is $20,000.

How an Appraisal Gap Works

Lenders will only lend up to a percentage of the appraised value, not the purchase price. When the appraisal comes in low, the buyer, seller, or both must decide how to resolve the difference.

  • Buyer increases their down payment to cover the gap.
  • Seller reduces the price to meet the appraisal.
  • Buyer and seller split the difference.
  • Contract is renegotiated or canceled if no agreement is reached.

This gap is a market-driven issue and is separate from any contractual protections such as an appraisal contingency or appraisal gap contingency.

Why Do Appraisal Gaps Happen?

Appraisal gaps commonly occur when:

  • Buyer demand pushes prices above recent comparable sales.
  • Recent sales are too old or limited to support the offer price.
  • Appraisers use conservative adjustments or undervalue upgrades.
  • The local market is appreciating faster than recorded comps.

Appraisal gaps are not uncommon in competitive or fast-moving markets, especially when buyers bid above list price.

How Appraisal Gaps Affect Buyers and Sellers

  • Buyers: may need additional cash, renegotiation, or contingency protection.
  • Sellers: may face price reductions or must choose a buyer willing to cover the gap.
  • Lenders: base loan amounts strictly on the appraised value, not the offer price.

Understanding the appraisal gap helps both parties prepare for financing outcomes and negotiation strategies.

Sell Your Home With Confidence

List your home on the MLS for a low flat fee and stay fully in control of the selling process.

View Flat Fee MLS Plans →