What Is an Appraisal Gap?

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An appraisal gap is the difference between the appraised value of a home and the contracted price of the home.

Key Takeaways

  • An appraisal gap is the difference between an appraised value and the contracted price of the property for sale.
  • Some appraisal gaps cause homebuyers to back out of the deal, while others are small enough for the homebuyer to choose to pay the gap upfront or negotiate a lower price with the seller.
  • A seller’s market with very low inventory can lead to a higher chance for an appraisal gap because buyers tend to make higher offers, which may be higher than the property’s appraised value.

Definition and Examples of an Appraisal Gap

An appraisal gap is the amount of money that is the difference between the contracted price of a home and its appraised value.

  • Alternate name: When a property “didn’t appraise.”

“An appraisal gap is a term that describes when the appraisal comes in below what is being offered,” Woody Fincham, an appraiser and founder of Fincham & Associates, told The Balance in a phone interview. “It’s a common thing in a heated market.”


A lender may not lend if the proposed price of the home is higher than the appraised value. Homebuyers facing an appraisal gap must make a decision about proceeding with the sale based on this information.

Appraisal gaps become more common when there is low housing inventory and high demand for properties, which has occurred in the U.S. housing market in recent years.

For example, let’s say you’ve found a property to buy. Due to heavy interest from other buyers, you offer $320,000 on a $300,000 list price and go under contract at that price.

Your lender requires an appraisal from an independent appraiser to evaluate whether the house is worth $320,000. If the appraiser determines that the property’s value is $290,000, you have an appraisal gap of $30,000 between the market value and the contracted price.

At this point, you, your lender, and the seller will have some decisions to make on how and whether the sale will proceed based on the appraisal gap.

How Does an Appraisal Gap Work?

Once an appraisal gap occurs, there are two paths forward. The first involves disputing the appraised value as it stands after the appraisal report is delivered, but the other path involves accepting that value and deciding how to proceed from there.


Buyers with an appraisal gap can ask the seller to reduce the price. However, in a low-inventory, high-demand market, the seller may have enough back-up offers to maintain their asking price, regardless of what the home is appraised for.

If your seller won't budge on price and your home doesn’t appraise for the contracted price, you can typically cancel the contract per what’s called the “appraisal contingency.”

If you aren’t willing to cancel the sale and can’t negotiate a lower price, you’ll need to pay the appraisal gap amount in cash as part of purchasing the home, so you would have a larger down payment.

Disputing an Appraisal Gap

If your appraisal results in an appraisal gap, the first step is to read the report in detail to see how the appraiser determined the home value.

“An appraisal report is a thesis with detailed additional narrative, so look at the adjustments they made,” Fincham said. “Are they looking at appropriate comps? If you’re in a heated market with appreciation, and they’re only using six-month-old comparable sales without adjustments for time, that’s a red flag.”


Requesting a new appraisal may be an option if the homebuyer and the real estate agent see ways that the appraisal report may have erred, such as failing to factor in local market trends.

Fincham said he has seen underwriters reevaluate an appraisal due to elements of the report and order a new appraisal as a second review of the property’s value. Because many real estate markets are classified as “rapidly appreciating,” it can be challenging to find comparable sales that truly reflect the current market conditions with complete nuance. The many complexities in the calculation of property value mean that sometimes there are conditions in which a second appraisal will shed new light on the value.

What Appraisal Gaps Mean for Home Purchase in Competitive Markets

Many sellers prefer a cash offer because it isn’t dependent on a favorable appraisal. Competitive markets tend to see more cash offers, which makes it harder for buyers to compete, Fincham said.


Buyers in competitive markets may choose to include a clause about their willingness to pay the appraisal gap in their offer, and what size gap they may be willing to cover. For example, you might agree to cover a gap of up to $20,000 while reserving the right to cancel the purchase if an appraisal gap is larger. A real estate agent can help you decide whether to include a clause based on your situation.

In a competitive market, you may want to consider homes with prices slightly lower than your budget. That way, you can offer a competitive bid or potentially offer more funds to fill any appraisal gaps.

A good real estate agent will have a sense for whether a home is overpriced or likely to appraise with an appraisal gap. They can advise their clients and provide any relevant comparable sales, Fincham said. Real estate websites such as Zillow or Trulia typically include estimated home values based on algorithms with their listing. They are not official, but they can help buyers get an idea of value so they know whether or not to anticipate an appraisal gap, he said.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Consumer Financial Protection Bureau. “My Appraisal Is Less than the Sale Price. What Does That Mean for Me?

  2. Colorado Department of Regulatory Agencies. “What Is an Appraisal Gap on a Home Purchase?

  3. Federal Reserve System. “The Fed - Housing Market Tightness During COVID-19: Increased Demand or Reduced Supply?

  4. Consumer Financial Protection Bureau. “What Are Appraisals and Why Do I Need To Look at Them?

  5. University of Missouri. “Homebuyer's Resource Guide: Home Ownership Made Easier | MU Extension.”

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