The Appraisal and the “Appraisal Gap”
How the appraisal protects your loan, what happens when a home appraises low, and how appraisal-gap coverage works.
What the appraisal does
When you finance, the lender orders an appraisal to confirm the home is worth what you’re paying. The loan is based on the lower of price or appraised value — so the appraisal protects both you and the lender from overpaying.
When it comes in low
If the appraisal is below the contract price, you can renegotiate, bring extra cash to cover the gap, or — with an appraisal contingency — walk away. Which move is right depends on how the home compares to true value.
Appraisal-gap coverage
In competitive offers, buyers sometimes agree to cover a set amount above appraisal in cash. It can strengthen an offer, but only commit to a gap you can actually fund and that the home is worth. It’s a calculated risk, not a default.
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Educational information only — not legal, tax, or lending advice. Figures are typical ranges, not quotes or approvals. Confirm specifics with a licensed lender or attorney.