Appraisal gap
An appraisal gap is the difference between a buyer's offer and a lower appraised value, a term no Virginia or federal rule defines; in a given purchase contract it is whatever the buyer has promised, if anything, to cover in cash.
An offer on one side, a lower appraised value on the other
Start with two numbers. The buyer has offered one price for the property. The buyer's lender has an appraisal that puts the value lower. The distance between them is the appraisal gap, and once it exists, someone has to answer for it or the deal changes.
No Virginia statute or regulation defines the phrase, and neither does any federal rule. A state real estate regulator, Colorado's Division of Real Estate, states the concept directly, calling it "the difference that occurs when a buyer's offer is higher than the actual appraised value of the property" under contract. That is borrowed as a description of the idea only; how any market behaves is not part of it.
The gap is measured against an appraisal, the opinion a licensed or certified appraiser renders, and not against any other opinion of what the land is worth. What an appraisal is and who may produce one are set out under appraisal.
Two places a purchase contract may already answer for the difference
Because no rule settles the gap, the purchase contract is where to look first. A contract may answer it in either of two places, or in neither.
A promise in the offer
Colorado's regulator notes that buyers may promise in the offer to cover part or all of the gap in cash. If the offer says so, that promise is the first answer to read, along with any limit it sets.
A condition tied to the appraisal
A purchase can be made to depend on the appraised value, which is one kind of contingency. Its wording decides what the buyer may do if the value comes in under the price.
Neither
The rest of the contract still governs, including any financing condition. The CFPB tells buyers they can often use the lower appraised value to negotiate a reduction in the sales price.
None of those paths is automatic for the seller or the buyer. The full set of outcomes from the seller's side is laid out in what happens if the buyer's appraisal comes in low.
Who can advise on a gap promise depends on who represents whom. In a residential sale under dual agency, the statutory disclosure for a firm with one existing client and one new client says that once dual representation begins the licensee cannot advise either party on the terms to offer or accept in any offer or counteroffer. Under designated agency, a principal or supervising broker may assign a different licensee to each client, though that broker is still considered a dual agent.
HUD's amendatory clause and the amount it states
One written answer to the gap comes from HUD: a model amendatory clause, dated March 2023, for HUD/FHA or VA financing, that measures the purchaser's obligation to complete the purchase against an appraised value of not less than an amount the clause states. On a contract that carries it, that stated amount is the figure a low appraised value is read against, and the clause itself leaves the purchaser free to proceed regardless of the appraised valuation.
Holding an offer priced above what a lender's appraisal may support?
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Questions about this term
Is a buyer's promise to cover an appraisal gap binding?
That turns on the words of the signed purchase contract. No Virginia or federal rule even defines an appraisal gap, so what the promise covers, whether it has a limit and what happens if the buyer does not perform are questions an attorney answers from the contract. The CFPB notes that, depending on a contract's terms, canceling can carry costs.
Where this page's facts come from
Every rule, office and figure above traces to one of these. Rules change; check the office before you act on one.
- What is an appraisal gap on a home purchase? Colorado Division of Real Estate
- My appraisal is less than the sale price. What does that mean for me? Consumer Financial Protection Bureau
- Amendatory Clause model document (March 2023) U.S. Department of Housing and Urban Development
- Va. Code 54.1-2139: dual agency or representation Code of Virginia
- Va. Code 54.1-2139.1: designated agency or representation Code of Virginia