Appraisal gap.
In plain English
An appraisal gap is what happens when the appraised value of a home comes in below the price you agreed to pay. Because a lender bases your loan on the lower of the price or the appraised value, that gap is money the lender will not finance. You either cover it with extra cash, renegotiate the price down, or back out if your contract lets you. In competitive markets, some buyers add an appraisal gap clause promising to pay a set amount of the difference in cash to make their offer stronger.
01Why it matters
An appraisal gap can demand thousands of unplanned dollars at the worst possible moment, and waiving your protections to win a bidding war puts that money at real risk.
02The math, step by step
You offer $400,000 and the home appraises at $385,000, a $15,000 gap. Your lender finances against the $385,000. If your offer included an appraisal gap clause promising to cover up to $10,000, you owe that $10,000 in cash on top of your down payment, and you must still find a way to handle the remaining $5,000 or renegotiate.
03What this is NOT
An appraisal gap is the dollar shortfall itself. An appraisal contingency is the clause in your contract that lets you renegotiate or walk away if that shortfall appears. The gap is the problem, the contingency is one way out of it.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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