What an appraisal gap is
When your buyer finances the purchase, their lender orders an appraisal: an independent opinion of what the home is worth. If the appraisal comes in below the contract price, the difference is the appraisal gap.
The lender typically bases the loan on the lower of the price and the appraised value, so the buyer's loan may shrink while the price stays the same.
Why it matters to you as the seller
A gap can put the sale at risk. Depending on the contract, the buyer may be able to renegotiate or walk away, often with their earnest money back, if the home doesn't appraise.
Even when the deal survives, the gap usually means you, the buyer or both of you give something up.
A gap example
Hypothetical example. Say you accept an offer of $400,000 and the appraisal comes in at $385,000. That's a $15,000 gap.
If the buyer planned to put 10% down on $400,000, their lender may now base the loan on $385,000. The buyer would need to bring extra cash to keep the same price, or the two of you would need to agree on a new one.
Your options when the appraisal is low
- Lower the price to the appraised value
- Ask the buyer to cover some or all of the gap in cash
- Split the difference
- Ask for a reconsideration of value with better comparable sales
- Let the buyer exit if the contract allows it and relist
Appraisal gap clauses
Some buyers offer an appraisal gap clause: a promise to cover a low appraisal up to a set amount. It can make one offer stronger than another, but only if the buyer truly has the cash to back it. Ask your agent to check the clause wording and the buyer's proof of funds.
Challenging an appraisal
You can't usually order a new appraisal on the buyer's loan yourself, but the buyer's lender may accept a reconsideration of value. That's a request backed by recent, similar sales the appraiser may have missed. It works best with strong evidence, not just a disagreement with the number.
How to lower the odds of a gap
Price from recent comparable sales, not just what you hope to get. A comparative market analysis from your agent helps.
Give the appraiser a short list of upgrades and recent repairs with dates and costs, and make the home easy to access and see.
