What is an appraisal gap?

An appraisal gap is the difference between a home's appraised value and the price the buyer agreed to pay. Because lenders finance based on appraised value rather than purchase price, the buyer covers the gap in cash. In Washington, buyers commit to this upfront using NWMLS Form 22AD.

How does an appraisal gap work?

An appraisal gap opens when the lender's appraiser values the home below what you agreed to pay. Lenders lend against appraised value, not against your contract.

Here is the math. You agree to buy a home in Bellevue for $900,000 and plan to put 20% down, so you expect a $720,000 loan. The appraisal lands at $860,000. Your lender now calculates 80% of $860,000, which is $688,000. You are $32,000 short. That shortfall is the appraisal gap, and it is yours to solve.

Nothing is wrong with the house. The appraiser could not find enough recent comparable sales to support the price. Appraisals look backward at what closed 30 to 90 days ago. Offers look forward at what buyers will pay today. In a fast market those two views separate, and the gap is where they land. Our overview of how a home appraisal works covers the process itself.

Who pays the appraisal gap?

The buyer pays. The lender will not increase the loan, so the money comes from you.

And it comes in cash. Gap money cannot be financed, cannot be rolled into your mortgage, cannot be spread over 30 years. You wire it before the deed records, on top of your down payment and closing costs. Buyers who waive an appraisal contingency without checking their savings first find this out at the worst possible moment.

Who pays is still negotiable, and four outcomes are realistic:

1. The buyer covers it in cash. The default in a competitive market.
2. The seller drops to the appraised value. More likely when the home has sat, or when the seller wants certainty over the last $20,000.
3. You split it. Keeps the deal alive and shares the cost.
4. You request a reconsideration of value. Worth doing when the appraiser leaned on weak comparables.

Which one you get has little to do with the rules and everything to do with leverage. That leverage was set the day you signed your offer.

What is appraisal gap coverage, and how does Form 22AD work?

Appraisal gap coverage is a written promise to cover a shortfall up to a stated amount. In Washington it lives on NWMLS Form 22AD.

Washington deals run on Northwest Multiple Listing Service forms. Form 22AD, the increased down payment addendum, is what people mean when they say "appraisal gap coverage" or an "appraisal gap clause." Sign it and you commit in advance to raising your down payment if the appraisal disappoints. You might guarantee $25,000 of coverage, or $50,000, or any number you choose.

That last part matters more than most buyers realize. You set the cap. This appraisal gap addendum is not an unlimited promise, and treating it as one is how people talk themselves out of using it.

The addendum attaches to Form 21, the purchase and sale agreement, and works alongside Form 22A, the financing addendum. Sellers weighing several offers read it closely, because it answers the only question that matters to them: does this deal still close if the appraisal comes in low?

There is also Form 22AN, the appraisal contingency notice, used when a buyer with an appraisal contingency needs to notify the seller after a low number. Your real estate agent will know which forms belong in your offer.

What is the difference between an appraisal gap contingency and a waiver?

An appraisal contingency keeps your exit. A waiver trades that exit for a stronger offer.

With a contingency, a low appraisal lets you renegotiate, bring more cash, or walk with your earnest money intact, depending on how it is written. It functions much like a financing contingency: a defined door out.

With a waiver, you cover whatever gap appears and you have no contractual exit. It makes your offer noticeably stronger. It is also a real financial commitment, and the conversation about whether you can afford it belongs before you sign, not after the appraisal arrives.

The middle path is the one most Washington buyers should look at first: keep the contingency and cap your exposure with Form 22AD. You show the seller a specific number you will cover. You keep a boundary. Both sides get what they actually need.

How much appraisal gap coverage should you offer?

Offer what you could write a check for tomorrow without touching your emergency fund. Not the number that wins the house.

Work backward from cash on hand. Subtract your down payment, closing costs, moving expenses, and the reserve you want left over after you get the keys. What remains is your ceiling. That figure is the honest one, and it does not move because you fell in love with a kitchen.

Then weight it to the property. A home with six similar recent sales down the street will appraise cleanly, and a modest guarantee is enough to signal you are serious. A custom home, an unusual lot, or anything with thin comparable data carries real gap risk, and your number should reflect that.

Are appraisal gaps common in Washington?

They cluster in fast markets, which describes most of the Puget Sound region in spring and early summer. When homes in Seattle and on the Eastside draw several offers over list, appraisals trail what buyers will actually pay.

Geography makes it sharper here. The region is pinned between water and mountains, inventory stays thin in the neighborhoods everyone wants, and one well-priced listing in Kirkland or Sammamish can pull five offers in a weekend. The appraiser assigned to that house is working from sales that closed months earlier.

The pattern is uneven, though, and that is the useful part. Neighborhoods with dense recent sales data appraise cleanly. Homes without close comparables do not. A custom home on acreage in Woodinville is a genuinely harder appraisal than a townhome in a Redmond development where six near-identical units sold last quarter. One has a spreadsheet behind it. The other has an opinion.

Pricing context helps you see it coming. Our Bellevue market trends and Redmond housing market trends track how fast values move between neighborhoods, and that movement is what drives appraisal outcomes.

What to know if you are buying

A low appraisal is not the end of your purchase. It is a negotiation you did not plan for, and you have four moves.

Read the appraisal. An appraisal is a professional opinion, not a measurement. Ask your lender for the report and check the comparable sales. Wrong school zone, missed renovation, comps pulled from a slower pocket of the market: each of those is legitimate grounds for a reconsideration of value.

Bring the cash if you have it. The appraisal reflects sales that closed months ago. It says nothing about what the home is worth to you in five years.

Renegotiate. A low appraisal is evidence, and the seller knows the next buyer's lender will likely order a similar one. That is real leverage, and it is the strongest hand you will hold in the transaction.

Ask your lender about structure. Adjusting your down payment or changing loan products sometimes closes the distance. Ask before you assume the deal is over.

Work through these with your real estate agent before you write the offer:

• How much cash can I bring beyond my down payment and closing costs?
• Do the recent comparable sales actually support this price?
• Should I include Form 22AD, and what cap makes sense?
• What happens to my earnest money in each scenario?
• Does my lender's appraiser know this neighborhood?
  
  

What to know if you are selling

A low appraisal is not a verdict on your home. It is one opinion, and you have leverage, especially if you drew multiple offers.

Your options mirror the buyer's: hold and ask them to cover the gap, split it, or take the appraised value to keep a solid buyer at the table. Weigh how the home was priced, how much interest it drew, and whether your timeline has room.

Prevention beats reaction. Price where the comparable sales support you and the gap risk drops before it ever exists. Knowing what your home is realistically worth before you list is worth more than a strong reaction to an appraisal three weeks later. If pre-sale improvements would support a higher valuation, Every Door's Turnkey Services handle renovations and staging with nothing paid upfront.

Help the appraiser. Hand over a list of upgrades, permits, and improvement dates. Appraisers want accurate information, and a documented remodel is often the difference between a supported price and a shortfall.

One more thing, and it is the part sellers miss: read the gap language before you read the price. An offer $20,000 higher with no appraisal gap coverage can net you less than a lower offer backed by Form 22AD. The highest number is not always the strongest offer.

Key takeaways

• An appraisal gap is contract price minus appraised value, and the buyer almost always covers it.
• Gap money is cash. It cannot be financed and it is due at closing.
• Form 22AD lets you cap your exposure, which is why it beats a blanket waiver for most buyers.
• Sellers should read gap language, not just price.
• Decide your ceiling before you tour, based on what you can part with while keeping reserves intact.

Frequently asked questions

Is there such a thing as appraisal gap insurance?

No. The phrase circulates online, but no insurance product covers an appraisal gap. What people mean is appraisal gap coverage, which is your own written promise to bring cash, documented in Washington on Form 22AD.

Who orders and pays for the appraisal?

Your lender orders it. You pay for it, typically $700 to $1,200 in the Puget Sound region, charged with your closing costs. You fund the report, but it is prepared for the lender.

Can a cash buyer have an appraisal gap?

Not in the lending sense. No lender means no required appraisal and no funding shortfall. Cash buyers sometimes order one anyway to confirm they are not overpaying, but a low number becomes a negotiating question rather than a problem to solve with a wire transfer.

Does a low appraisal lower my property taxes?

No. Your county assessor sets assessed value on its own schedule with its own methodology. A lender's appraisal has no effect on your tax bill, though you can appeal your assessment separately if you believe it is too high.

Planning your offer with a local team

An appraisal gap is a math problem, not a crisis. The buyers who handle it well decided their number before they toured the house and wrote an offer that reflected it.

At Every Door Real Estate, we run gap scenarios with buyers before they write, and we help sellers price where the comparable sales will actually support the number. If you want to work through your situation with someone who knows these neighborhoods block by block, reach out to our team.