What an appraisal gap is,
and who pays for it.

An appraisal gap is the space between the price you agreed to pay and a lower appraised value. It matters because a lender lends against the appraised value rather than the contract price. When the appraisal lands under, the loan is sized to the appraised value, and the difference turns into cash the buyer has to bring.

In New Jersey this comes up earlier than buyers expect, because the standard state form does not print an appraisal contingency the way it prints other protections. That does not mean nobody has one. On a conventional loan it means whether you have one, and what it says, is whatever was written into your particular contract. Three routes are common: cover the difference in cash, go back to the seller and renegotiate, or say up front in the offer that you will cover a gap up to a set amount. Which of those fits depends on your cash position and how competitive the house is, and it is a conversation to have before you write.

How you are financing changes that answer. FHA and VA purchases come with an addendum the loan requires, and it works a lot like an appraisal contingency: it sets out an appraised value, and it says the buyer is not obligated to complete the purchase or lose the deposit if the appraisal comes in under that number. The buyer still keeps the choice to go ahead at the agreed price anyway. That means an FHA or VA buyer has a form of appraisal protection whether or not anything was negotiated into the contract, while for a conventional buyer the protection is whatever was written into the contract. Those are not the only two programs, and another one may bring protection of its own, so the question to put to your lender is what your particular loan carries.

Say a home is under contract at 400,000 and the appraisal returns 385,000. The lender will lend against 385,000, so 15,000 has to come from somewhere: the buyer's own funds, a renegotiated price, or a clause the parties already agreed to. Those numbers are an illustration, not a figure for any market or property.

What to ask, and who answers it: your agent can tell you how often gaps are showing up in your price band and town, and what a gap clause does to how your offer is received. Your lender is the one who can say what a lower value would do to your specific loan and your cash to close, and which addenda your loan type brings with it. Your attorney is the one who drafts or reviews the clause itself, and that is worth confirming with them before it goes in.