What an appraisal gap is
An appraisal gap is the difference between the contract price and the appraised value. Because lenders generally size the loan from the lower of the price or the appraised value, a gap either increases the buyer’s cash to close or forces a renegotiation.
In the Florida Realtors/Florida Bar contracts, the financing contingency includes the lender receiving a satisfactory appraisal within the Loan Approval Period. That makes the appraisal timeline part of the contract timeline, not only the lender’s.
A worked example
| Item | Appraisal meets price | Appraisal $10,000 low |
|---|---|---|
| Contract price | $400,000 | $400,000 |
| Appraised value | $400,000 | $390,000 |
| Maximum loan at 95% LTV | $380,000 | $370,500 |
| Down payment needed | $20,000 | $29,500 |
| Extra cash required | — | $9,500 |
Hypothetical conventional purchase with 5% down. Closing costs are excluded. The extra cash is not simply the $10,000 difference, because the loan-to-value is applied to the lower value.
How each loan type handles it
| Loan type | What happens | What to know |
|---|---|---|
| Conventional | Loan amount is based on the lower of price or appraised value | The buyer covers the difference, the seller reduces the price, or both. Seller credits cannot replace the down payment. |
| FHA | Contract must include the FHA amendatory clause | The buyer is not obligated to complete the purchase, or forfeit the deposit, if value is below price. The buyer may still choose to proceed. |
| VA | Appraiser alerts the lender before finalizing a low value (often called “Tidewater”) | The lender and agents get a short window to submit additional comparable sales. If value stays low, the buyer can renegotiate, pay the difference or cancel under the VA escape clause. |
Options when the value is low
- Check the report. Confirm square footage, condition, upgrades and the comparable sales used.
- Submit better data. Recent, nearby, similar sales the appraiser did not use. On VA loans, use the pre-finalization window.
- Request a reconsideration of value through the lender if there is a factual error or stronger data.
- Renegotiate. Split the difference, reduce the price or adjust seller credits within program limits.
- Cover the gap. Only with documented, acceptable funds, and only after the lender confirms the updated numbers.
For agents: before you write the offer
- Ask the lender how much extra cash the buyer could document if the value comes in 2% or 5% low.
- If you offer an appraisal gap clause, state a dollar cap the buyer can actually fund.
- Prepare a short list of supporting sales for the appraiser at the time of the appointment.
- Track the Loan Approval Period. A late appraisal can squeeze the buyer’s cancellation deadline.
Related: Florida financing contingency timeline · Seller concessions by loan type.
Questions clients ask
Can a seller credit cover an appraisal gap?
Not directly. Seller credits can pay eligible closing costs within program limits, but on a conventional loan they cannot supply the down payment. The gap usually must come from the buyer’s funds or a price change.
Does a low appraisal mean the house is overpriced?
Not always. Appraisals rely on closed comparable sales, which can lag a fast market or miss upgrades. Review the report before deciding.
Can the buyer still proceed on an FHA loan if value is low?
Yes. The amendatory clause gives the buyer the option to proceed without regard to the appraised value, but the loan is still based on the lower value, so more cash is needed.
Sources and editorial information
Published by The Rice Financial Group. Editorial update: November 10, 2026. How we prepare our resources.
- Florida Realtors: FR/Bar contract and rider updates (2021)
- Florida Realtors: Financing contingency defined terms
- HUD: FHA amendatory clause model document
- VA: Home loan program
- Fannie Mae: interested party contributions
Educational information, not an approval, rate quote or commitment to lend. Program rules, pricing and availability can change. Confirm the requirements for your borrower, property and transaction with the mortgage team.
Make the information personal.
Tell us what you are planning and where you need clarity. You do not need to be ready to apply to ask a question.
Review an offer scenario