What's the difference between appraisal gap coverage and waiving the appraisal contingency?

What's the difference between appraisal gap coverage and waiving the appraisal contingency?

You want to know how appraisal gap coverage differs from waiving the appraisal contingency when making an offer. Both strategies help buyers compete in multiple-offer situations, but they work differently and carry different risks.

Appraisal gap coverage means you agree to pay a specific dollar amount above the appraised value if the home appraises for less than your offer price. For example, you might offer $500,000 with $20,000 appraisal gap coverage. If the home appraises for $480,000, you'd pay the extra $20,000 out of pocket at closing. Your total risk is capped at that $20,000.

Waiving the appraisal contingency means you agree to buy the home at your full offer price regardless of what the property appraises for. Using the same example, if you waive the contingency and the home appraises for $450,000, you'd need to cover the entire $50,000 difference in cash. Waiving removes your option to walk away or renegotiate based on a low appraisal.

Most buyers choose gap coverage over a full waiver because gap coverage limits the financial risk while still making the offer competitive. Talk with your lender about how each approach affects your loan amount and cash needed at closing.