Process

Appraisal Gap

An appraisal gap is the difference when a home appraises for less than the agreed price. Say you offer $405,000 and it appraises at $390,000: that $15,000 gap is money the lender won't finance. You'd need to cover it in cash, renegotiate the price, or walk away if you have an appraisal contingency.

The lender bases your loan on the lower of the price or the appraised value, so when the appraisal comes in under your offer, the gap is yours to solve. Your financing doesn’t stretch to cover it.

You generally have three moves: bring extra cash to bridge the difference, go back to the seller and renegotiate the price, or exit the deal if your contract has an appraisal contingency. Which one makes sense depends on the market and how much you want the home. Some buyers even promise an appraisal gap amount upfront to win an offer, and I’ll talk you through that risk before you do.

Related terms

Appraisal

An appraisal is an independent estimate of a home's market value, done by a licensed appraiser the lender orders. It protects the lender, and you, from paying more than the home is worth. The appraiser compares the home to similar recent sales nearby. If the value comes in low, it can change your loan or your negotiations.

Appraisal Contingency

An appraisal contingency is a clause in your purchase contract that lets you back out, or renegotiate, if the home appraises for less than your offer price, usually without losing your earnest money. It's a safety net for buyers. In hot markets, some buyers waive it to compete, which adds risk if the appraisal comes in low.

Earnest Money

Earnest money is a good-faith deposit you put down when your offer is accepted, showing the seller you're serious. It's usually held in escrow and applied toward your down payment or closing costs at closing. If the deal falls through for a reason your contract protects, you can often get it back.

Last updated: June 13, 2026

This definition is educational and isn't an offer to lend or financial advice. Rates, programs, and guidelines may change without notice. All loans are subject to credit and property approval.

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