For a purchase, lenders size your loan from the lower of the price and the appraisal. When the appraisal comes in low, the loan shrinks, and someone has to make
Why does a low appraisal matter?
Say you planned to borrow 90% of a $500,000 price and the home appraises at $485,000. The lender will lend 90% of $485,000, not of $500,000. You’d need more cash at closing, a lower price or
It also moves your loan-to-value ratio. Staying at or under 80% loan-to-value is what lets a conventional buyer skip private mortgage insurance, so a low appraisal can add mortgage insurance you
Who pays the appraisal gap?
It’s negotiated. The seller can lower the price, the buyer can pay the difference in cash on top of the down payment, the two can split it, or, if the contract allows, the
The CFPB notes that you can often use a lower appraisal to negotiate the price down, and it calls buying a home for more than its appraised value very risky. Paying a gap means starting with less equity than
What is an appraisal gap clause?
In competitive markets, some buyers add an appraisal gap clause to their offer: a promise to cover a shortfall in cash up to a set amount, such as $15,000. It reassures the seller without giving up every protection, because anything above the cap goes
It often travels with an escalation clause, since bidding above the list price raises the odds of a low appraisal. Only promise what you can pay: the gap money comes on top of your down payment and closing costs, and your lender will want to see it
How can you protect yourself?
An appraisal contingency lets you renegotiate or cancel and keep your earnest money if the value comes in low. FHA loans have a similar protection: HUD generally requires an amendatory clause saying the buyer doesn’t have to complete the purchase or forfeit the deposit if the appraisal is
You’re entitled to a copy of the appraisal, generally at least three business days before closing. Read it. If the appraiser missed recent comparable sales or got facts wrong, ask your lender how to
A $15,000 gap with 10% down
| Contract price | $500,000 |
|---|---|
| Appraised value | $485,000 |
| Appraisal gap | $15,000 |
| Planned loan (90% of price) | $450,000 |
| Loan after the appraisal (90% of $485,000) | $436,500 |
| Cash for the purchase, planned | $50,000 |
| Cash for the purchase, after the appraisal | $63,500 |
The buyer now needs $13,500 more: the $15,000 gap, less the 10% they no longer put down on value the home doesn’t have. Closing costs come on top. Your loan officer can run
Common mistakes
- Assuming the lender will lend against the contract price when the
appraisal is lower. - Writing an uncapped gap clause, or one bigger
than your savings. - Forgetting that a low appraisal can push you above 80% loan-to-value
and add PMI. - Waiving the appraisal contingency without working out what a
gap would cost.
Questions
Can you challenge a low appraisal?
You can ask your lender to request a reconsideration, ideally pointing to factual errors or recent comparable sales the report missed. The value may or
Does the seller have to lower the price?
No. Unless the contract says otherwise, the seller can decline, and your options then depend on whether you have
Does an appraisal gap affect cash buyers?
Only if they get an appraisal. Without a loan there’s no lender appraisal, so a cash buyer who wants one usually
Sources
- CFPB: My appraisal is less than the sale price
- CFPB: What are appraisals and why do I need to look at them?
- 12 CFR 1002.14: Your right to a copy of the appraisal
- HUD: FHA Single Family Housing Policy Handbook 4000.1
Written and checked by the Broker & Agent team on October 2, 2026. General information, not legal, tax or lending advice. Something out of date? Tell us.