Appraisal gaps explained: what happens when the appraisal comes in low

Rules checked October 21, 2026.

An appraisal gap is what’s left when the appraiser’s value comes in below the price you agreed to pay. If you’re under contract at $650,000 and the appraisal says $630,000, the gap is $20,000.

The gap matters because of how your lender sizes the loan. On a purchase, Fannie Mae’s rules set the home’s value at the lower of the sales price or the appraised value. Your down payment percentage and your loan amount are both figured from that lower number, so the lender won’t lend against the $20,000 the appraiser couldn’t support.

How often it happens right now

Less often than a few years ago. Low appraisals were common when homes routinely sold over asking, because buyers were bidding past what recent sales could support. In September 2026, homes in the Denver metro sold for 98.45% of list price on average, according to DMAR, so the typical buyer paid a little under asking. Gaps still show up on homes that drew multiple offers and on unusual homes with few comparable sales nearby.

A worked example

Say you’re buying a $650,000 home with 10% down on a conventional loan, and the appraisal comes in at $630,000.

	Before the appraisal	After a $630,000 appraisal
Value the lender uses	$650,000	$630,000
Loan at 90%	$585,000	$567,000
Cash for the down payment	$65,000	$83,000

To keep the same 10% down, you’d bring $18,000 more than you planned. That’s the $20,000 gap plus 10% of $630,000, minus the $65,000 you already had set aside. Closing costs come on top of that.

If the seller drops the price to $640,000 and you cover the rest, your loan is still $567,000 and your down payment is $73,000, so you’d need $8,000 more. If the seller drops all the way to $630,000, you’d need $63,000, which is $2,000 less than your original plan.

There’s another route worth asking your lender about. You can sometimes keep the original $585,000 loan and accept a higher loan-to-value ratio. Against a $630,000 value, that loan is about 93% of the value, so you’d bring no extra cash, but you’d pay more for mortgage insurance and possibly a slightly higher rate. Whether you qualify at that level depends on your loan program and your finances.

Your options when the appraisal comes in low

You have more choices than paying the difference or walking away.

• Ask the seller to lower the price to the appraised value. A seller who says no is betting the next buyer’s appraisal comes in higher.
• Split the gap with the seller. A price cut of half the gap with you covering the other half is a common middle ground.
• Pay the gap in cash and keep the price where it is. This makes sense if you’ve wanted this home for a while and have the savings.
• Ask your lender for a reconsideration of value. On a Fannie Mae loan, you get one borrower-requested reconsideration per appraisal, and you can submit up to five comparable sales the appraiser may have missed. Your lender has to explain the process when it gives you the appraisal.
• Terminate the contract under the appraisal provision and get your earnest money back.

A reconsideration of value is worth trying when the appraiser used weak comparables or got facts wrong, like square footage or a finished basement. It’s less likely to work when the comparables are reasonable and the price was simply high. It also takes time, so it shouldn’t stop you from protecting your rights under the contract while you wait.

What Colorado’s contract says

The Colorado Real Estate Commission’s standard residential contract for use on or after January 1, 2026 handles appraisals in § 6. There are three appraisal deadlines, and they’re set in the dates and deadlines table at the front of the contract.

Under § 6.2.1, if the appraised value is less than the purchase price, or you haven’t received the appraisal by the Appraisal Deadline, you can do one of two things by the Appraisal Objection Deadline:

• Send the seller a written Notice to Terminate. The contract ends and your earnest money is returned.
• Send the seller a written Appraisal Objection, with a copy of the appraisal or a written notice from your lender confirming the value is below the price.

If you object and you and the seller haven’t agreed in writing on a fix by the Appraisal Resolution Deadline, the contract terminates on that deadline. You can stop that by withdrawing your objection in writing before the deadline passes, which means you’re going ahead at the original terms.

If you do nothing by the Appraisal Objection Deadline, you’ve accepted the appraisal and lose the right to terminate over it (§ 24.1). If your lender’s appraisal is late, talk to your agent before the deadline about objecting or extending it in writing.

FHA and VA loans work a little differently. The contract notes that the appraisal deadlines don’t apply to FHA or VA loans. Those loans carry their own clauses in § 6.2.2 and § 6.2.3 that let you walk away without losing earnest money if the appraised value comes in below the amount the clause names (for FHA) or below the price (for VA). You can still choose to go ahead.

You get a copy of the appraisal either way. Federal rules require your lender to give it to you promptly once it’s done, or three business days before closing, whichever comes first.

How an appraisal gap clause works

An appraisal gap clause is a promise in your offer to cover some or all of a low appraisal yourself. It tells the seller that a low value won’t sink the deal, and it shows up most when a home has several offers.

The Colorado contract doesn’t have a checkbox for it. It’s usually written into the Additional Provisions in § 30. The clause should name the most you’ll pay over the appraised value as a dollar amount, and say what happens if the gap is bigger than that. Usually the appraisal provision still applies to anything above your cap.

With a $15,000 cap on the example above, a $630,000 appraisal leaves a $5,000 shortfall above your cap. You’d pay $15,000 of the gap and could object or terminate over the last $5,000 under § 6.

Some buyers go further and waive the appraisal provision entirely. Under § 3.2, leaving an appraisal deadline blank or marking it N/A deletes that provision. That puts you on the hook for any gap, however large, so only do it if you have the cash to pay one.

Before you offer a gap clause, figure out the number with your lender. The cash goes on top of your down payment and closing costs, and your lender will want to see where it comes from.