The Problem with an Appraisal Gap: What Is It and What to Do
illustration of a hand off of a home

Lessons From a First-Time Home Buyer: The Problem with Appraisal Gaps

Amazingly, when my wife and I recently purchased our very first home, the process couldn’t have gone smoother. Alas, that was not the case for our sister and brother-in-law. A day after they told us that their offer had been accepted on a house, they hit us back to say that the acceptance had since been rescinded as the owner feared an appraisal gap.

Now, you may be thinking 1) Wow! that’s pretty messed up and 2) what’s an appraisal gap? It’s a good question — and one I wasn’t 100% sure of the answer to until their experience. More importantly, if there is an appraisal gap, what does that mean for buyers?

Let’s take a look at some of the appraisal gap basics (and why my sister-in-law’s housebuying deal fell through as a result).

What to Know About Appraisal Gaps and the Homebuying Process

What is an appraisal gap?

As you might expect, an appraisal gap is something that can pop up as part of the appraisal process. If you’re financing a home, the bank will more than likely require an appraisal to ensure that the home is worth what you’re paying for it. After all, should you fail to make mortgage payments, they’ll want to seize your home and recoup their money. Sidenote: an appraisal is different from a home inspection, which is a service buyers will usually pay for to ensure there aren’t any hidden costly issues with the home they’re considering buying.

So, put simply, an appraisal gap is when a home appraises for less than the price that a buyer is set to pay for a house. With that in mind, what can prospective homebuyers do if this should happen?

What happens if there is an appraisal gap?

If an appraisal comes in below the price that a buyer is set to pay, there may be some adjustments needed. First, the buyer and seller may need to renegotiate a price that’s in line with the appraisal. If that’s a no-go, the buyer may have the option to pay the difference in cash. Essentially, this would be like increasing their down payment.

Another option that may or may not help is requesting another appraisal. For one, in order to get a second opinion, you’ll need to prove that the first was inaccurate for one reason or another. Of course, even if you do successfully lobby for a new appraisal, there’s still no guarantee that it will come back at the value you and the seller are looking for.

Should those options fail (or you decide ahead of time not to deal with them), the last option is to walk away from the deal. Granted, your ability to do this without consequence will depend on what’s in the contract you and the seller signed. Of course, if you haven’t yet signed a contract — which was the case with my family members — then you can walk away scott-free, aside from some potentially hurt feelings.

Why was the seller in my story afraid of an appraisal gap?

While I can’t say for sure what about the home was leading the seller to worry about it not appraising, I can assume that the reason she called off the deal early is that she was afraid she’d have to come down in price. As for why she (verbally) accepted the offer in the first place… that’s something we’ll never know. Perhaps once she realized that my sister and brother-in-law wouldn’t be able to put up the money to fill the gap, she decided to hold out for a cash offer instead — or at least someone who is able and willing to make up the difference in cash.


As disappointing as this experience was for our family members, after learning more about what an appraisal gap is, it’s probably a good thing that they never actually went under contract on the home. If they had and there was indeed a gap, it could have further complicated the matter — including possibly forcing them to put up more initial cash than they intended to or had available. So, while an appraisal gap might not be an issue for many real estate transactions, it’s at least something that potential homebuyers should be aware of and protect themselves against as they undergo their homebuying search.

Author

Kyle Burbank

Head Writer ~ Fioney
Kyle is the head writer for Fioney. He is a personal finance nerd, constantly looking for new apps and services to test and incorporate into his own financial game plan. In addition to his role at Fioney, he's written for other publications including Born2Invest, Lifehack, and Laughing Place, as well as his own site Money@30. He also creates personal finance and travel-related videos for Fioney's YouTube channel, which has garnered more than 2 million views. Currently, Kyle resides in Springfield, Missouri with his wife of 10 years. Together, they enjoy traveling (including visiting Disney Parks around the world), dining, and playing with their dog Rigby.

Other Articles by Kyle Burbank

Bilt and Blade logos on NY skyline

Bilt Announces Partnership with Blade Helicopter Service

Bilt is bringing more perks to its most loyal customers thanks to a new partnership. About the partnership: This week, Bilt Rewards revealed a collaboration with Blade. As part of this partnership, not only will Bilt members earn bonus rewards on Blade bookings but elite members will also enjoy special benefits from the helicopter taxi service. Now, Bilt Platinum elite customers will receive one complimentary Blade flight per year. This...
Ramp logo

Spend Management FinTech Ramp Raises $150 Million

The FinTech startup Ramp has revealed its latest "mega-round." About the round: This week, Ramp announced that it had raised $150 million. The Series D-2 was co-led by Khosla Ventures and Founders Fund. Additionally, new investors Sequoia Capital, Greylock, and 8VC joined existing investors Thrive Capital, General Catalyst, Sands Capital, D1 Capital Partners, Lux Capital, Iconiq Capital, Definition Capital, Contrary Capital, and others in participating in the round. To date,...
man holding a small model house

Lessons From a First-Time Home Buyer: The Worst Parts of Homeownership So Far

As you can probably imagine, making the jump from being a long-time apartment dweller to a first-time homeowner has been drastic. On the whole, the changes have been positive (which is why we chose to buy in the first place). But, of course, there are some downsides too — including some that I didn't really think about ahead of time. With that in mind, I wanted to share some of...
The "Email" field is empty, you must enter some text to proceed.The text you entered in the "Email" field appears to be invalid, please edit it and try again
Get the Latest News Delivered to Your Inbox

A Guide to Building Credit and Increasing Your Credit Scores

When it comes to credit, there’s some good news. The average credit score in the United States has been steadily rising in recent years, coming in at 715 in 2023. That may be because, today, consumers not only have more ways to access their credit reports and scores than ever before but also because there are an increasing number of options that Americans have for building credit in the first...

2024 SoFi Checking and Savings Review

Ever since I started taking an interest in the FinTech sector, one company whose name I’ve seen pop up over and over again is SoFi. Lately it seems as though that theme has been sent into overdrive as the company has not only become a household name thanks to its stadium naming rights deal but also because of the company’s continued product expansions. The most interesting development in my mind...
Brim logo

Brim Financial Raises $85 Million as It Eyes Global Expansion

Toronto-based FinTech infrastructure startup Brim Financial has announced a new funding round. About the round: Brim has revealed an $85 million round. The Series C was led by EDC Investments while new investor Vistara Growth and returning investors White Owl Group, Epic Ventures, and Zions Bank also participated. To date, the company has now raised $110 million including a Series B in 2021. According to Brim, the latest funding will...
Chase Freedom Flex card

Chase Reveals Q2 2024 Freedom 5%(+) Bonus Categories

Chase has announced its bonus category picks for the second quarter of 2024 — including some interesting twists. About the categories: As April approaches, Chase has revealed what categories Freedom and Freedom Flex cardholders can earn bonuses on. From April 1st through June 30th, customers can earn 5% (or more) in three categories: Amazon.com, Hotels, and Restaurants. Similar to how Chase embraced a "New Year, New Me" theme last quarter,...

FedEx Announces Winners of 11th Annual 2023 Small Business Grant Contest

Nearly three months after the entry period ended, FedEx has announced the winners of its 11th annual Small Business Grant Content. This year's event saw more than $300,000 in funds going to a variety of small businesses across the nation. Last month, the company revealed 100 finalists, with that list now being narrowed down to just 10 winners. This year's grand prize winners included KindVR, The Cupcake Collection, Up In...