An appraisal gap occurs when the buyer’s lender appraises your home below the agreed contract price. The lender will only loan against the appraised value — so if your home is under contract at $650,000 but appraises at $620,000, there’s a $30,000 gap. The buyer can’t simply borrow the extra $30,000.
In this situation, sellers have three options: reduce the price to the appraised value, ask the buyer to cover the gap out of pocket (appraisal gap coverage — common in competitive markets), or split the difference. In Denver’s current flat market, appraisal gaps are more common than in 2021-2022 when appreciation was running hot. The best defense as a seller: price accurately from day one using a real CMA, not an aspirational number. Overpriced homes that go under contract above true market value are the ones most likely to face appraisal issues.