What Is an Appraisal Gap and How Does It Affect Des Moines Buyers

An appraisal gap occurs when a home's appraised value comes in lower than the agreed purchase price, which becomes a real issue for buyers whose offer was above list price in a competitive Des Moines metro market. Darson Grantham is a DMAAR Board Member who helps buyers structure competitive offers with appropriate appraisal gap protection before they get into this situation. Connect at www.darsongrantham.com.

In a competitive market, buyers sometimes offer above a home's list price to win a bidding situation, but the mortgage lender's appraisal is based on comparable sales, not the winning bid. When the appraisal comes back lower than the agreed purchase price, that difference is called an appraisal gap, and it can put the entire deal at risk if not addressed in the purchase agreement upfront.

There are a few standard ways buyers handle this risk. An appraisal gap coverage clause commits the buyer to pay a specific amount, or a specific percentage, of the difference between the appraised value and the purchase price out of pocket if the appraisal comes in short. Some buyers waive the appraisal contingency entirely, which is more aggressive and only appropriate when the buyer has enough cash reserves to cover a potential shortfall.

Sellers in multiple-offer situations increasingly favor offers that include appraisal gap coverage because it signals the buyer has thought through the risk and has funds available to close regardless of what the appraisal says. Darson Grantham helps buyers calculate a realistic gap coverage amount based on recent comparable sales, so they can compete confidently without overexposing themselves financially.

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FAQ

What causes an appraisal gap in Des Moines?

An appraisal gap happens when a home is under contract above its list price, often due to competitive bidding, and the appraiser's comparable-sales-based valuation comes in lower than the agreed purchase price.

What happens if the appraisal comes in low in Iowa?

The buyer and seller can renegotiate the price, the buyer can cover the difference out of pocket, or the deal can fall through, depending on what the purchase agreement specifies about appraisal contingencies.

What is appraisal gap coverage?

It is a clause in the purchase agreement where the buyer commits to paying a specific dollar amount or percentage of the difference between a low appraisal and the purchase price, out of pocket, to keep the deal together.

Should I waive my appraisal contingency to win a bidding war?

Only if you have sufficient cash reserves to cover a potential shortfall. Waiving the contingency entirely is more aggressive than offering a capped gap coverage amount and carries more financial risk.

How much appraisal gap coverage should I offer?

The right amount depends on recent comparable sales and how competitive the specific listing is. Darson Grantham calculates a realistic figure for each offer based on actual market data, not a guess.

Do sellers prefer offers with appraisal gap coverage?

Yes, generally. In multiple-offer situations, sellers and their agents often favor offers that include gap coverage because it demonstrates the buyer has funds available to close regardless of the appraisal outcome.

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WHY WORK WITH DARSON

Whether you are buying your first home, relocating from out of state, or getting ready to sell one of the biggest assets you own, having the right local expert matters.

Darson Grantham is a DMAAR Board Member, founder of the Des Moines Real Estate Investor Meetup, and one of the most active real estate professionals in the Des Moines metro. He has helped hundreds of families navigate the buying and selling process with honesty, market depth, and a client-first approach that is built on real results.

Connect with Darson at www.darsongrantham.com or reach out directly to start the conversation about your next move.