You found the right home in Washington Park and your offer is accepted. Then the appraisal comes in low. Now what? If you are hearing about appraisal gaps for the first time, it can feel confusing and a little stressful. You want to keep your purchase on track and protect your budget. In this guide, you will learn what an appraisal gap is, why it happens in Wash Park, and the smart steps you can take to prepare and respond. Let’s dive in.
What is an appraisal gap
An appraisal gap happens when the home’s contract price is higher than the value the appraiser reports to your lender. The gap equals Contract Price minus Appraised Value.
Why this matters: lenders base the loan amount on the appraised value, not your contract price. If the appraisal is lower, you must either bring more cash, renegotiate with the seller, or use other options your lender allows.
Here is a simple example. Imagine a contract price of $700,000 and an appraisal of $670,000. The gap is $30,000. If your loan allows 80% loan-to-value, the lender calculates 80% of the appraised value, or $536,000. If you expected 80% of the contract price ($560,000), you would see a shortfall in loan proceeds and need to adjust your cash and terms to close.
How appraisals affect your loan
Appraisers review comparable sales, condition, and market trends to estimate value. In neighborhoods with older or unique homes, selecting the right comps and making adjustments can be complex.
Lenders set your maximum loan using the lower number: the contract price or the appraised value. Your down payment and loan-to-value ratio apply to the appraised value.
Loan programs can differ:
- Conventional loans often require an appraisal, though some borrowers may receive appraisal waivers. Waivers are not guaranteed and are less common for unique or older homes.
- FHA loans require an appraisal and minimum property standards. Condition and safety notes can affect closing timelines.
- VA loans require a VA appraisal to establish reasonable value and meet VA property requirements.
- Cash purchases do not require a lender appraisal, but a valuation can still inform your decision.
If the value comes in significantly below the price and you cannot cover the difference, a lender may decline to fund the loan.
Why gaps happen in Washington Park
Washington Park is a mature, high-demand Denver neighborhood with classic bungalows, historic homes, and newer infill. This mix can make valuations challenging because homes on the same block may differ in age, size, finish level, and renovation quality.
In competitive moments, multiple offers and tight inventory can push contract prices beyond recent comparable sales. Appraisals rely on closed sales data. When market prices move quickly or a home has high-end upgrades that are hard to quantify, the appraisal may not keep pace with what buyers are willing to pay.
Proximity to parks, transit, and central Denver amenities supports strong buyer interest. That demand, combined with varied home styles, can raise the chance of an appraisal gap.
Protect yourself in your offer
Preparation before you write an offer can make a real difference:
- Review likely comps and an appraisal range with your local agent and lender.
- Ask the seller for a list of upgrades, permits, and recent comparable sales they considered.
- Consider a broker price opinion to sanity-check value before going all in.
Offer-stage strategies to consider:
- Include an appraisal contingency with clear timelines so you can review results and respond.
- Use escalation clauses carefully. Set a cap you can support if the appraisal comes in low.
- If you want a more competitive offer, you can tighten other contingencies while keeping an appraisal review period for protection.
Colorado contracts typically include appraisal or financing contingency language. Your contingency should give you time for the lender-ordered appraisal and a path to renegotiate or cancel if the value is lower than the contract price. Shorter timelines can make your offer more competitive but reduce your protection, so weigh the tradeoffs with your agent and lender.
If your appraisal is low
If the appraisal comes in below contract price, you usually have several options:
Negotiate a price reduction to the appraised value.
Bring extra cash to cover the gap so your loan can proceed based on the appraised value.
Split the difference with the seller.
Request a reconsideration of value through your lender. Provide stronger comps, corrections to factual errors, and documents for recent permitted upgrades.
Ask your lender about a second appraisal or a desk review. Policies vary and timing matters.
Cancel under your appraisal or financing contingency if allowed by your contract.
Negotiation and documentation tips
- Prepare a comp package. Work with your agent and lender to compile recent, relevant sales and a clear summary of upgrades and permits.
- Follow lender channels. Do not pressure the appraiser directly. Submit an organized reconsideration package through your lender.
- Keep records. Save all offers, concessions, and repair agreements. Underwriters often ask for documentation.
- Address noted repairs. Some loan programs require certain repairs before closing or an escrow holdback.
Timelines and communication
Set realistic appraisal and objection deadlines in your Colorado contract. In busy markets, appraisal turn times can affect your contingency period. Stay in close contact with your lender and agent so you can respond quickly if the report lands late in the timeline. If you need an extension, request it early and document any agreed changes in writing.
The bottom line for Wash Park buyers
Appraisal gaps are manageable when you prepare your financing, structure your contingencies, and move quickly with data if the value comes in low. With the right plan, you can keep your purchase aligned with your budget and your risk tolerance while staying competitive in Washington Park.
Ready to talk strategy for your specific price range and timeline? Connect with the Linkow Baltimore Team for local guidance on comps, offer structure, and appraisal planning tailored to Washington Park.
FAQs
What is an appraisal gap in Washington Park
- An appraisal gap is the difference between your contract price and the appraised value when the appraisal is lower, which can require extra cash, renegotiation, or contract changes.
How do low appraisals affect my mortgage
- Lenders base your loan on the appraised value, not the contract price, so a lower appraisal can reduce loan proceeds and increase the cash you need to close.
Are certain loan types more sensitive to low appraisals
- FHA and VA loans include property requirements in addition to valuation, while conventional loans rely on appraised value and may allow waivers in limited cases.
Should I include an appraisal contingency in Denver
- Most buyers include an appraisal or financing contingency to allow time to review the report and decide whether to renegotiate, cover a gap, or cancel.
What can I do if I disagree with the appraisal
- Ask your lender to file a reconsideration of value with stronger comps, corrected facts, and documentation for recent upgrades or permits.
Who pays for a second appraisal or review
- Costs vary by lender and scenario, but buyers typically pay if the lender allows a second appraisal or desk review.
How much cash should I plan for a possible gap
- Discuss a realistic range with your agent and lender before offering so you know your maximum comfortable cash contribution if the appraisal is low.
Do appraisal waivers apply in older Wash Park homes
- Waivers depend on loan and borrower profile and are less common for unique or older properties where comparable sales are limited.
What happens if we cannot resolve a low appraisal
- You can proceed with extra cash, renegotiate, or cancel under your contingency if allowed by your contract deadlines and terms.
