What Is Appraisal Gap?
Appraisal Gap: The difference between the purchase price and a lower appraised value.
An appraisal gap is the difference between the price you agreed to pay and a lower appraised value.
Example
You agree to pay $420,000 with 10% down. The home appraises for $400,000, a $20,000 gap. The lender bases the loan on $400,000, so 90% of value is $360,000. To keep the price, you need $60,000 down instead of $42,000.
Your options
- Ask the seller to lower the price to the appraised value
- Split the difference
- Pay the gap in cash
- Request a reconsideration of value with better comparable sales
- Cancel under your appraisal contingency or the FHA/VA amendatory clause
Appraisal gap coverage
In competitive markets, some buyers agree in the offer to cover a gap up to a set amount. Only promise what you can actually pay.