In September 2022, a new form was created to address buyers covering the difference between the appraisal and purchase price.

An “appraisal gap” is the difference between the appraised value of a home and the purchase price in the sales contract. An “appraisal gap clause” is used in a sales contract to guarantee that the home buyer will cover the monetary gap between the appraisal and the sales contract if an appraisal gap becomes an issue.

How Does An Appraisal Gap Guarantee Clause Work?

When a home does not appraise at value, the gap between the appraised value and the contract price must be resolved. The transaction cannot move forward without a resolution.

An appraisal gap clause states that the buyer will cover the gap between the contract price and the appraised value.

In the example used at the beginning of this post, the buyer may need to bring $20k to the closing table. However, if they added an appraisal gap guarantee clause for $20k (or more), it would automatically correct itself.

Appraisal gap coverage guarantees the seller that the buyer will cover the difference up to a certain point so the transaction can still move forward.