An appraisal gap happens when the bank values a home for less than the buyer agreed to pay. In fast markets where bidding pushes offers past list price, it is common, and it stops deals cold because lenders will only finance against the appraised figure, not the contract price.
The gap is not a judgment on the house. Appraisers work from closed comparable sales, which lag the market by weeks or months. When prices climb quickly, the comps simply have not caught up yet.
What each side is facing
The buyer has to cover the difference in cash, renegotiate, or walk and risk their earnest money depending on how the contingencies were written. The seller faces a choice between holding firm and losing weeks of momentum, or cutting the price and giving up equity they had already counted.
Ways to bridge it
Splitting the difference is the most common landing spot. Appraisal gap coverage clauses, written into the offer up front, tell the seller exactly how much cash the buyer will bring if a shortfall appears. A rebuttal to the appraiser with better comps sometimes works, though it needs real evidence rather than opinion. A second appraisal is possible but slow.
The practical lesson is to decide your gap position before you write the offer, not after the report lands.
Read the full breakdown on HouseCashers.com