An appraisal gap occurs when a home’s appraisal value comes in lower than the price the buyer agreed to pay. This is a common challenge in competitive housing markets, where roughly 8% of home appraisals come in below the contract price.

This is particularly prevalent in real estate markets like  Los Angeles, CA, Austin, TX, or Chicago, IL, where bidding wars often drive prices above the appraised value. Because lenders base loan amounts on the appraisal—not the purchase price— buyers are typically responsible for covering this difference out-of-pocket. In this Redfin guide, we’ll explain why appraisal gaps happen and how buyers can effectively navigate them.

What is an appraisal gap?

An appraisal gap happens when a home’s appraised value is lower than the price you agreed to pay. This doesn’t automatically end the deal, but it can complicate things. You may need to cover the difference out of pocket or renegotiate with the seller. If you can’t agree on a solution, you could lose the home—and in some cases, your earnest money too.