{"id":311466,"date":"2025-11-22T15:14:57","date_gmt":"2025-11-22T15:14:57","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/real-estate\/what-buyers-and-sellers-need-to-know-about-an-appraisal-gap\/"},"modified":"2025-11-22T15:14:57","modified_gmt":"2025-11-22T15:14:57","slug":"what-buyers-and-sellers-need-to-know-about-an-appraisal-gap","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=311466","title":{"rendered":"What Buyers And Sellers Need To Know About An Appraisal Gap"},"content":{"rendered":"


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\"What
What is an Appraisal Gap in Real Estate<\/figcaption><\/figure>\n<\/div>\n

When buying a home, it is probably crucial that you don\u2019t overpay. On the other hand, when you\u2019re selling, you want your home to appraise for the agreed-upon sales price.<\/p>\n

An appraisal gap occurs when there is a difference between the contract price of the home and the fair market value the bank appraiser puts on the property.<\/p>\n

For example, if a home is under contract for $650,000, but the appraiser calculates the value at $625,000, there will be a $25,000 appraisal gap<\/em>.<\/p>\n

In hot real estate markets characterized by low inventory levels of homes for sale, it is not unusual to have bidding wars on many properties.<\/p>\n

When <\/a>multiple bidders compete for a property<\/a> they love, it is not unusual for the price to reach levels higher than what the comparable sales say the property is worth.<\/p>\n

It is one of the reasons many home sellers love cash sales. There is no worry that a low appraisal will kill the deal.<\/p>\n

What is an Appraisal Gap Guarantee?<\/strong><\/h2>\n

It can become disheartening when you are a buyer who has been putting in offers and losing to other bidders. Many potential buyers will try to improve their chances of competing with cash buyers.<\/p>\n

One of the ways they will do this is by inserting an <\/a>appraisal gap clause into the real estate contract. An appraisal gap clause states that the buyer will make up the difference between the appraised value and the sales price.<\/p>\n

It\u2019s often referred to as an appraisal gap guarantee. The appraisal gap guarantee clause can set a dollar amount of coverage<\/a> or explicitly say the entire gap will be covered.<\/p>\n

Sellers can feel comfortable excepting an offer from a buyer will an appraisal gap clause. They know that a low appraisal will no longer be a potential problem causing the sale to fall through.<\/p>\n

It accomplishes the same thing as <\/a>waiving the appraisal altogether<\/a>.<\/p>\n

Appraisal Gaps Need to Be Covered to Satisfy The Mortgage Lender<\/strong><\/h2>\n

An appraisal gap clause is needed to begin with to satisfy the lender. In circumstances where there is insufficient equity in the property, the lender wants to know they are protected.<\/p>\n

For example, if a buyer puts 10 percent down, the lender will only lend 90 percent of the <\/a>appraised value<\/a>. So, if the appraisal comes in low, the buyer will need to increase their down payment in order to satisfy the lender.<\/p>\n

If there was ever a default with the mortgage, the lender wants to know they have proper equity. The lender would not want to provide a mortgage for a property that was underwater, so to speak.<\/p>\n

Example Appraisal Gap Clause Language<\/strong><\/h2>\n
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\"Understand
Understand Appraisal Gap Contract Language in Real Estate<\/figcaption><\/figure>\n<\/div>\n

Language such as this can be added to an offer to purchase contract stating a buyer\u2019s intentions should there be an appraisal gap.<\/p>\n

The buyer has waived their appraisal contingency and agrees to pay the difference in funds between what the lender is willing to lend and the purchase price if their appraisal does not equal at least that amount.<\/p>\n

If there is a condition in the commitment letter or denial letter related to the appraised value or lack of buyer funds available to make up the difference, that condition will not be considered a valid reason for the buyer to void this agreement, and deposits will be refunded.<\/p>\n

What Happens When There is No Appraisal Gap Clause<\/strong><\/h2>\n

When there is no appraisal gap clause, there are quite a few things that can happen in a real estate transaction, including:<\/p>\n