TL;DR
An appraisal gap is the difference between a home’s contract price and its appraised value. Example: you offered $310,000, the appraisal came in at $290,000 — that’s a $20,000 appraisal gap. In Michigan’s 2026 competitive market, lenders only lend against the appraised value. The buyer must either: (1) cover the gap in cash, (2) renegotiate with the seller, (3) challenge the appraisal, or (4) walk away if the contract permits. Here’s how to handle each scenario.
What Is an Appraisal Gap?
When you buy with a mortgage, your lender orders an independent appraisal. The lender will only loan against the LOWER of the contract price or appraised value. If the appraisal comes in below contract price, you have an appraisal gap.
Example:
- Purchase price: $310,000
- Down payment: 5% ($15,500)
- Loan: $294,500
- Appraisal: $290,000
- Lender will lend: 95% of $290,000 = $275,500
- Appraisal gap: $19,000 the buyer must cover in cash OR renegotiate
Your 4 Options When the Appraisal Comes in Low
1. Cover the Gap in Cash
The fastest way to keep the deal alive. You bring the difference to closing in addition to your down payment. Only viable if you have the extra cash.
2. Renegotiate With the Seller
Ask the seller to reduce the contract price to the appraised value. In a slower market, sellers often agree. In a hot market, they may not.
3. Meet in the Middle
Common compromise: buyer covers half the gap in cash, seller drops price by the other half. On a $20K gap, buyer brings $10K extra, seller drops $10K.
4. Challenge the Appraisal
If you believe the appraisal missed comparable sales, your lender can submit a “Reconsideration of Value” with new comps. Success rate is roughly 1-in-5, and the process takes 1–2 weeks.
5. Walk Away (if your contract allows)
If you wrote an appraisal contingency, you can terminate the contract and recover your earnest money. If you waived appraisal, you may forfeit earnest money for walking.
Appraisal Gap Coverage Clauses
In competitive markets, buyers sometimes include an “appraisal gap coverage” clause in their offer, agreeing in advance to cover a specified gap (e.g., “Buyer will cover an appraisal gap up to $15,000”). This makes the offer more competitive while limiting buyer exposure.
Frequently Asked Questions
What is an appraisal gap in real estate?
An appraisal gap is the difference between a home’s contract price and its appraised value when the appraisal comes in lower than the agreed-upon price. The lender will only finance the appraised value.
Who pays the appraisal gap?
The buyer is typically responsible for covering the gap in cash, unless the seller agrees to lower the price or split the gap. Lenders will not finance above the appraised value.
Can I dispute a low appraisal?
Yes — your lender can submit a Reconsideration of Value with stronger comparable sales. Success is roughly 1-in-5 and takes 1–2 weeks. Disputes work best when the appraisal missed recent comparable sales.
Should I waive the appraisal contingency?
Only if you can cover any reasonable gap in cash. Waiving appraisal makes your offer stronger but puts your earnest money at risk if you can’t close at contract price.
How often do appraisals come in low in Michigan?
In a balanced market, roughly 8–12% of appraisals come in below contract. In hot markets with rapid price growth, the rate can spike to 15–20%.
Does the appraisal include the buyer’s down payment?
No — the appraisal evaluates the home only. The down payment is separate. If you offered $310,000 with 5% down and appraisal came in at $290,000, your down payment still applies to the new $290,000 base (or to the original $310,000 contract if you cover the gap).
Need Help With an Appraisal Gap?
We help Downriver buyers and sellers navigate appraisal gaps every week. Fill out our contact form or text 734-977-1405.
Chris Bujaki with The Saward Team, brokered by eXp Realty