Bidding on a home in Hilliard and hearing about “appraisal gaps”? You are not alone. In a competitive market, appraisals and gap coverage can make or break a deal. You want to win the home without taking on unnecessary risk. In this guide, you will learn how appraisal gaps work in Ohio, how lenders respond, and how to protect yourself when you write or accept an offer. Let’s dive in.
What an appraisal is and why it matters
An appraisal is a licensed appraiser’s professional opinion of a home’s market value on a specific date. For most loans, the lender orders the appraisal to support the mortgage. Appraisers in Ohio must be licensed and follow USPAP, which guides how they select comparable sales and reconcile a final value.
For single-family homes, the appraiser primarily uses the sales comparison approach. They review recent, nearby sales that are similar in size, age, features, and location, then adjust for differences. The result is a value that the lender uses to confirm safe lending.
Why it matters: a lender bases your loan amount on the lesser of the contract price or the appraised value. If the appraisal is lower than the contract price, the lender reduces the loan amount. You must bring more cash, renegotiate price or terms, or use your appraisal contingency to exit.
What an appraisal gap means
An appraisal gap is the difference between the purchase price and the appraised value. Example: if your contract is $350,000 and the appraised value is $335,000, the gap is $15,000.
Two key terms help you manage this risk:
- Appraisal contingency: gives you the right to renegotiate or cancel if the appraisal is low.
- Appraisal gap coverage: a buyer promise to cover some or all of the shortfall up to a specific cap. Some call this an appraisal guarantee or coverage addendum.
Removing an appraisal contingency gives the seller more certainty, but it puts more risk on you. Coverage clauses split the difference by giving the seller a defined safety net while keeping a limit on your cash exposure.
How gap coverage works in offers
In multiple-offer situations, sellers look for financing strength and certainty. You can signal strength in several ways:
- Limit or remove an appraisal contingency
- Include appraisal gap coverage with a clear dollar or percentage cap
- Provide a strong earnest money deposit and proof of funds
- Use an escalation clause that competes with other offers
Common gap clause structures include:
- Dollar cap: you cover the shortfall up to a set amount, such as $10,000.
- Percentage cap or LTV target: coverage up to a percentage of price or until your loan-to-value remains within a target.
- Full coverage: you agree to cover the entire shortfall. This is rare and high risk.
- Conditional coverage: you cover up to a cap if you can still obtain financing after the loan amount is reduced.
Clarity in writing prevents disputes. Your contract should address whether the loan amount will change, how much extra cash you will bring, the maximum you will cover, what happens to earnest money if you cannot close, and whether you must provide proof of funds for the cap.
Timing matters. Appraisals are typically completed two to three weeks after contract acceptance, depending on the lender and scheduling. If the appraisal comes in low, you can bring cash, ask the seller to reduce price, split the gap, or cancel if your contingency allows it. You can also request a reconsideration of value by submitting better comparable sales through your lender. A second appraisal is uncommon and often needs lender approval.
Loan types and lender rules that affect gaps
Your loan type controls how much flexibility you have when the appraisal is low.
- Conventional loans: the lender sets the loan amount based on the appraised value, not the contract price. You must cover the shortfall in cash unless you and the seller change terms. Some lenders permit a reconsideration of value with additional comps.
- FHA loans: the home must meet minimum property standards and the appraised value must support the loan. FHA does not allow financing above the appraised value. The buyer or seller must resolve any shortfall.
- VA loans: VA enforces minimum property requirements and bases the loan on the appraised value. The buyer and seller must address any gap.
- Cash purchases: no lender rules apply. You may still choose an appraisal for your own due diligence, but you can close without lender limitations.
Appraisal independence rules prevent buyers, sellers, and agents from pressuring an appraiser. You may share facts and comparables through proper channels, but no one can coerce a result.
Real-world math: three short scenarios
Use simple math to see how a low appraisal changes your cash to close.
Scenario A: Conventional loan, 20 percent down
- Contract price: $350,000
- Appraisal: $335,000
- Expected loan at 80 percent of contract: $280,000
- Lender bases loan on the appraisal: 80 percent of $335,000 = $268,000
- Result: you must bring the $15,000 shortfall, plus any closing costs, to keep the original price
Scenario B: Gap coverage with a cap
- Same numbers as above, with a $15,000 gap
- You promised up to $10,000 in coverage
- Result: you bring $10,000 and ask the seller to reduce price by $5,000, or you renegotiate terms
Scenario C: All cash
- You can close at the contract price even if the appraisal is low
- You may still use the appraisal to confirm value and resale potential
When appraisal gaps matter in Hilliard
In Hilliard and across Franklin County, the risk of a gap rises when inventory is tight and multiple offers are common. Appraisers rely on recent local sales. If your property sits in a fast-moving micro-market or has unique features with few recent comps, values may vary more.
Hilliard comparables often come from within Hilliard or nearby communities in Franklin County, depending on the property type and price band. Ask your agent to pull recent sales from the Columbus-area MLS that match your home’s age, size, and features. For parcel-level history and public records, check Franklin County Auditor resources. City of Hilliard permit and development pages can also provide context for new construction activity.
For real-time perspective, review local market reports from Columbus REALTORS and your agent’s MLS data. These sources help you gauge sale-to-list ratios and how often homes meet, beat, or miss appraisals in specific neighborhoods.
Smart strategies for buyers
- Set your cap with cash in mind. Decide the maximum gap you can afford before you write the offer.
- Get a written preapproval and ask your lender about low-appraisal policies and whether they support reconsideration requests.
- Consider conditional coverage, such as “up to $X provided financing is still available at the reduced loan amount.”
- Keep the appraisal contingency if you cannot afford the risk. If you waive it, increase earnest money and be ready to close.
- Ask your agent for micro-market comps and discuss the chance of a low appraisal before you decide on your coverage.
Smart strategies for sellers
- Compare offers by financing strength, earnest money, and appraisal protections. A slightly lower all-cash offer can be less risky than a higher financed offer without coverage.
- Request proof of funds and a lender preapproval letter. Confirm the buyer can cover any promised appraisal gap.
- Insist on clear language. Define the coverage cap, how the buyer will bring funds to closing, and what happens to earnest money if the buyer cannot perform.
- Prepare for negotiation. Decide your minimum acceptable net proceeds in case the appraisal is low.
What to do after a low appraisal
If the appraisal comes in below the contract price, you have options:
- Pay the gap if you are able and the home still meets your goals
- Ask the seller to reduce the price to the appraised value
- Split the difference and adjust terms to keep the deal moving
- Request a reconsideration of value through your lender by submitting stronger comps
- Seek lender approval for a second appraisal when appropriate
- Use your appraisal contingency to cancel if a resolution is not possible
Local prep checklist
For buyers:
- Calculate a worst-case gap you can cover and document funds
- Secure a strong preapproval that states your loan type
- Discuss conditional coverage language with your agent
- Review recent Hilliard comps from the local MLS and Franklin County records
For sellers:
- Weigh price against certainty when comparing offers
- Verify buyer funds for any coverage cap and confirm loan type
- Use clear gap clause terms in writing and address earnest money outcomes
- Keep your timeline flexible for potential appraisal reviews
Buying or selling in Hilliard works best when you blend local data with clear contract strategy. If you want help crafting an offer or reviewing appraisal risk, connect with Terra Shoaf to talk through your next steps.
FAQs
What happens to financing if appraisal is lower than purchase price?
- The lender bases the loan on the appraised value, so you must bring extra cash, renegotiate, or use your appraisal contingency to cancel if allowed.
How do FHA and VA loans handle appraisal gaps in Ohio?
- FHA and VA base the loan on the appraised value and require minimum property standards. Borrower or seller must cover the shortfall or change terms.
Can you challenge a low appraisal with a reconsideration of value?
- Yes. Your lender may allow a reconsideration using additional comparable sales and corrections, but results vary based on available data.
Is a home appraisal the same as a home inspection?
- No. An inspection reviews condition in detail. An appraisal estimates market value and may note issues that affect value, but it is not a substitute for an inspection.
Are appraisal gaps common in Hilliard’s competitive market?
- Frequency changes with market conditions. When inventory is low and multiple offers are common, appraisal gaps happen more often because prices can move faster than recent comparable sales.
