# Appraisal gap

> An appraisal gap is the difference between the price a buyer agreed to pay and a lower appraised value. Lenders lend against the lower figure, so the buyer, the seller or both must cover the difference or renegotiate.

Also called: appraisal shortfall, low appraisal. Topic: Buying a home.

For a purchase, lenders size your loan from the lower of the price and the [appraisal](https://brokerandagent.com/glossary#appraisal). When the appraisal comes in low, the loan shrinks, and someone has to make up the difference.

## 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 a different deal.

It also moves your [loan-to-value ratio](https://brokerandagent.com/glossary#loan-to-value-ratio). Staying at or under 80% loan-to-value is what lets a conventional buyer skip [private mortgage insurance](https://brokerandagent.com/glossary/private-mortgage-insurance), so a low appraisal can add mortgage insurance you hadn’t planned on.

## 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](https://brokerandagent.com/glossary#down-payment), the two can split it, or, if the contract allows, the buyer can cancel.

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 you paid for.

## What is an appraisal gap clause?

In competitive markets, some buyers add an appraisal gap clause to their [offer](https://brokerandagent.com/glossary#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 back to negotiation.

It often travels with an [escalation clause](https://brokerandagent.com/glossary#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 in your accounts.

## How can you protect yourself?

An [appraisal contingency](https://brokerandagent.com/glossary#appraisal-contingency) lets you renegotiate or cancel and keep your [earnest money](https://brokerandagent.com/glossary/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 below the price.

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](https://brokerandagent.com/glossary#comparables) or got facts wrong, ask your lender how to request a reconsideration.

## 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 your exact numbers.

## 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 may not change.

### 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 an appraisal contingency.

### 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 orders it themselves.

Calculator: [Mortgage calculator](https://brokerandagent.com/tools/mortgage-calculator)

## Related terms

- [Appraisal](https://brokerandagent.com/glossary#appraisal): An appraisal is a licensed or certified appraiser’s written opinion of a home’s market value, based on its condition and recent comparable sales. Lenders require one on most mortgages to confirm the home supports the loan.
- [Appraisal contingency](https://brokerandagent.com/glossary#appraisal-contingency): An appraisal contingency lets a buyer renegotiate or cancel a home purchase and recover their earnest money if the home appraises for less than the agreed price, as long as they act by the deadline in the contract.
- [Loan-to-value ratio](https://brokerandagent.com/glossary#loan-to-value-ratio): Loan-to-value ratio is the mortgage amount divided by the home’s value, usually the lower of the price or the appraised value. A $360,000 loan on a $400,000 home is 90% LTV; a lower LTV generally means better terms.
- [Escalation clause](https://brokerandagent.com/glossary#escalation-clause): An escalation clause is part of an offer that automatically raises the buyer’s price above a competing offer by a set amount, up to a stated maximum. It usually requires the seller to show the competing offer that triggered it.
- [Down payment](https://brokerandagent.com/glossary#down-payment): A down payment is the part of a home’s price you pay in cash at closing instead of borrowing. It’s usually stated as a percentage of the price, and less than 20% down on a conventional loan typically means paying mortgage insurance.

## Sources

- [CFPB: My appraisal is less than the sale price](https://www.consumerfinance.gov/ask-cfpb/my-appraisal-is-less-than-the-sale-price-what-does-that-mean-for-me-en-2007/)
- [CFPB: What are appraisals and why do I need to look at them?](https://www.consumerfinance.gov/ask-cfpb/what-are-appraisals-and-why-do-i-need-to-look-at-them-en-167/)
- [12 CFR 1002.14: Your right to a copy of the appraisal](https://www.law.cornell.edu/cfr/text/12/1002.14)
- [HUD: FHA Single Family Housing Policy Handbook 4000.1](https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh.pdf)

Checked 2026-10-02 by the Broker & Agent team. General information, not legal, tax or lending advice.

Source: https://brokerandagent.com/glossary/appraisal-gap