An appraisal gap occurs when the lender's appraisal comes in below the agreed-upon purchase price. Since lenders base loan amounts on the lower of the appraised value or purchase price, a low appraisal means the buyer's loan won't cover the full agreed amount, creating a gap that has to be resolved somehow before closing can proceed as originally structured. There are a few ways to handle a gap. The buyer can cover the difference in cash, paying out of pocket for the gap between the appraised value and the loan amount available at the original price. The buyer and seller can renegotiate the purchase price down to align with the appraised value, though this requires the seller's agreement and isn't guaranteed, especially if other buyers are still interested. The buyer can also challenge the appraisal by requesting a reconsideration of value from the lender, providing additional comps that support a higher value, though this doesn't always succeed. In competitive markets, some buyers include an "appraisal gap coverage" clause in their initial offer, committing upfront to cover a certain amount (or the full gap) if the appraisal comes in low, which can make an offer more attractive to sellers who are wary of appraisal risk killing a deal. This is a calculated risk buyers take on to strengthen their offer's competitiveness. If a gap can't be resolved through any of these paths and the buyer has an appraisal contingency in the contract, they typically have the right to terminate and recover their earnest money. Whether that contingency exists, and what it specifically allows, depends on how the contract was written, which is why reviewing appraisal contingency language carefully before submitting an offer matters, particularly in competitive markets where buyers sometimes waive this protection.