Appraisal Gaps - what are they?

Appraisal Gaps

Understanding Appraisal Gaps in Real Estate

In a competitive market, we often have to pull out all the stops to get an offer accepted. One area that can make or break a deal is the appraisal. If you have heard the term appraisal gap and weren’t quite sure what it means—or how it could impact you—you’re not alone. We’re breaking it down here in a clear, practical way so you know exactly what to expect.

What Is an Appraisal Gap?

An appraisal gap happens when a home appraises for less than the agreed-upon purchase price.

For example:

• You agree to buy a home for $600,000

• The appraisal comes in at $580,000

• That $20,000 difference is the appraisal gap

Since lenders base loans on the appraised value—not the contract price—this gap has to be addressed before the transaction can move forward.

Why Appraisal Gaps Matter in a Competitive Market

In multiple-offer situations, buyers are often competing not just on price, but on certainty and strength. Sellers want to know that the deal will hold together even if the appraisal comes in low.

That’s where appraisal gap strategies come into play. When we’re crafting an offer, we look at market data, comparable sales, and overall demand to determine whether an appraisal gap is likely—and how best to handle it.

Common Ways Appraisal Gaps Are Handled

Here are the most common scenarios we see:

1. Buyer Covers the GapThe buyer brings additional cash to closing to make up the difference between the appraised value and the purchase price. This is often written into the contract as an appraisal gap clause with a specific dollar amount.

2. Renegotiating the PriceIf the appraisal comes in low, the buyer and seller may renegotiate the purchase price to align more closely with the appraised value.

3. Splitting the DifferenceSometimes both parties meet in the middle, sharing the gap to keep the deal moving forward.

4. Walking Away (If Protected by the Contract)If there is an appraisal contingency in place and no agreement can be reached, the buyer may have the option to terminate without penalty.

Is Waiving an Appraisal the Same Thing?

Not quite. Waiving the appraisal contingency means the buyer agrees to move forward regardless of the appraised value. This can be a powerful tool, but it also carries risk.

When we advise clients on this option, we look closely at:

• Cash reserves

• Comfort level with potential out-of-pocket costs

• Long-term plans for the home

It’s never a one-size-fits-all decision.

The Risks Buyers Should Consider

While appraisal gaps can strengthen an offer, they do come with considerations:

• More cash required at closing

• Less flexibility if market conditions shift

• Paying above appraised value, which may matter if you plan to sell in the near future

Our role is to help you understand those risks fully before making any commitments.

How We Help Navigate Appraisal Gaps

This is where experience truly matters. We don’t just write offers—we create strategies. From analyzing comparable sales to having honest conversations about risk and comfort levels, we guide our clients every step of the way so there are no surprises.

In fast-moving markets, knowledge and preparation are everything. Appraisal gaps don’t have to be intimidating when you understand how they work and have the right plan in place.

If you’re buying or selling and want to talk through appraisal strategies specific to today’s market, we’re always happy to help.