Why appraisal gaps happen

An appraisal gap appears when the appraiser’s independent estimate of market value is below what the buyer and seller agreed to. Common causes include rapidly rising local prices, sales driven by bidding wars or cash offers, limited comparable sales (comps), and differences in appraisal adjustments for condition or upgrades. Appraisers use recent comps, local market data, and condition adjustments — not the contract price — to reach a value. (See the CFPB’s explanation of appraisals for borrowers: https://www.consumerfinance.gov/ask-cfpb/what-is-a-home-appraisal-en-1563/.)

How lenders react and why it matters

Lenders rely on the appraisal to protect their collateral. If the appraised value is lower than the purchase price, the lender typically bases the loan on the lower value, which reduces the amount it will lend. That creates the shortfall the buyer must cover if they want to keep the original loan-to-value (LTV). In practice, lenders may also order a second appraisal, request a reconsideration of value, or — in some markets and loan files — offer an appraisal waiver. The Federal Housing Finance Agency tracks appraisal modernization efforts and appraisal alternatives that affect lender practices: https://www.fhfa.gov/.

Real example (illustrative)

If a buyer signs a contract for $400,000 but the appraisal comes back at $380,000, the lender will underwrite against $380,000. On a conventional 80% LTV loan, that cuts available financing by $16,000, leaving the buyer responsible for that difference or a renegotiated price.

Options for borrowers when an appraisal gap appears

  • Negotiate the price with the seller. Sellers sometimes lower the price, especially if the buyer moves quickly to show the shortfall.
  • Bring cash to closing. The buyer can increase the down payment to cover the gap.
  • Ask the lender for a reconsideration of value (ROV). Provide recent comps, evidence of upgrades, or error corrections for the appraiser to review.
  • Request a second appraisal. Lenders may order this at their discretion, sometimes at the borrower’s expense.
  • Pursue an appraisal waiver (lender-dependent). Some underwriters can waive the in-person appraisal; this is a lender decision and not guaranteed for all files.

In my practice advising buyers, combining a quick ROV with targeted comps and photos of upgraded systems has successfully closed many gaps without requiring additional cash.

Preventing and minimizing appraisal gaps

  • Work with an agent who knows local comps and recent sale trends.
  • Prepare a short, factual appraisal package for the appraiser (list of recent comparable sales, permits for major upgrades, contractor invoices for recent work). See our practical checklist for maximizing appraisal value: Preparing Your Property for Appraisal: Checklist to Maximize Value.
  • Avoid inflated offers that don’t reflect local comps unless you have the cash to cover a potential gap.
  • Understand how valuation affects your mortgage by reading: How Property Appraisals Impact Mortgage Approval.

How to dispute or request reconsideration

Buyers cannot directly change an appraiser’s report, but they can ask the lender to submit a reconsideration of value. Effective documentation includes more recent or closer comps, evidence of errors in the appraisal (wrong square footage, misreported condition), or proof of legal upgrades. Note: appraisal disputes can take time and are not guaranteed to succeed. If a property truly lacks comparable sales, an appraiser’s valuation may still reflect market uncertainty.

Common mistakes to avoid

  • Assuming the appraisal will match a competitive offer.
  • Treating the appraiser as an advocate for buyer or seller; appraisers are independent and accountable to the lender and appraisal standards.
  • Waiting too long to assemble documentation; early preparation speeds ROV reviews.

Quick borrower checklist

  1. Ask your agent for a market analysis before you make an offer.
  2. Build an appraisal packet (comps, permits, photos) and give it to your lender/agent immediately after the appraisal order.
  3. If there’s a gap, get written options from the lender (ROV timeline, second appraisal costs, impact on closing).
  4. Consider negotiation, additional down payment, or walking away if protections in your contract allow.

Authoritative sources and further reading

Internal resources

Professional disclaimer

This article is educational and not individualized financial advice. For guidance tailored to your situation, consult a licensed mortgage professional, real estate agent, or certified financial planner.