An appraisal gap is the difference between the agreed purchase price and the lower value supported by the appraisal.
An appraisal gap is the difference between the agreed purchase price and the lower value supported by the appraisal.
An appraisal gap matters because lenders usually base leverage decisions on supported value, not just on the contract price. If the appraisal comes in lower than expected, the borrower may need to bring in more money, renegotiate the price, or use a contract contingency.
It also matters because a seemingly small valuation shortfall can change the financing math materially, especially when the buyer was already operating with a limited down-payment cushion.
Borrowers encounter the appraisal gap after the appraisal is completed and the file is moving through underwriting and toward closing.
The issue becomes most urgent when the supported value affects Loan-to-Value Ratio (LTV), Cash to Close, and whether the contract needs to be renegotiated.
A buyer agrees to pay $600,000, but the appraisal supports only $575,000. The $25,000 difference is the appraisal gap the parties now need to address.
Appraisal gap differs from Appraised Value because the appraised value is the lender-supported valuation number, while the appraisal gap is the mismatch between that number and the purchase price.
It also differs from Appraisal Contingency. The gap is the valuation problem itself. The contingency is the contract protection that may give the buyer options if that problem appears.