Appraisal Gap Fees Fall as Bidding Wars Cool

Buyer use of appraisal gap coverage provisions fell to 11% of written offers in the first quarter of 2026, down from a 2021 peak of 27%, according to Redfin's quarterly survey of its agents. The decline reflects the broader cooling of bidding wars as inventory has gradually rebuilt and price-growth expectations have moderated.

An appraisal gap coverage provision commits the buyer to pay cash for any shortfall between the contract price and the appraised value. The mechanism became widespread during the 2020-2022 boom when many offers above list price exceeded what appraisers would support, creating financing obstacles. Redfin estimated that 38% of bidding-war offers in 2021 included appraisal gap coverage.

"Buyers today simply have less competitive pressure to waive conditions that protect them financially," said Daryl Fairweather, chief economist at Redfin. Fairweather said the agent survey showed that agents describe 32% of offers as "competitive" in Q1, down from 48% in Q1 2022.

Agent data also showed a decline in inspection waivers. Inspection contingencies were waived on 14% of offers in Q1, down from 31% at the 2021 peak. Redfin agents reported waiver-triggered renegotiations have become more common, with 22% of post-inspection cases resulting in price reductions averaging 2.1% of contract value.

Markets with the highest competitive intensity still see meaningful appraisal gap usage. Boston (31%), Providence (28%), Hartford (26%), and Raleigh (22%) maintained above-average rates of appraisal gap coverage inclusion. Cooler Sun Belt markets including Austin (4%), Phoenix (6%), and Jacksonville (5%) rarely see the provision included in offers.

The declining usage has produced secondary effects on the home-appraisal industry. Mortgage Bankers Association data showed that appraisal turnaround times normalized to 12 days in March, compared with 22 days at the 2021 peak. Appraisers have absorbed reduced volume per transaction; American Enterprise Institute estimated a 28% decline in appraisal volumes over three years.

FHA and VA appraisals continue to operate under program-specific protocols. The VA retains its valuation escalation framework, while FHA has modernized its appraisal protocols through the Modernization of FHA Loss Mitigation initiative. Both agencies continue to see higher incidence of appraisal-related contract challenges than the conventional market.

Regulatory attention to appraisal bias persists. HUD's Office of Fair Housing and Equal Opportunity filed 42 administrative complaints in 2025 related to alleged appraisal discrimination, up from 28 the prior year. The Consumer Financial Protection Bureau has separately published guidance requiring servicer review of appraisal challenges that allege bias.

Looking ahead, Realtor.com economist Danielle Hale said appraisal gap coverage will "remain a tool for outlier competitive situations rather than a standard buyer concession." Industry practitioners expect usage to stabilize around 10 to 12% of offers through 2026 as inventory gradually improves and buyer-side leverage strengthens in most markets.