If you own a home or are in the market to purchase a home you are aware that in today’s real estate market, low inventory and high demand are driving up home prices. Many homes are getting offers over list price. This scarcity of homes is requiring many buyers to be creative with their offers.
While this seems like great news for sellers, it can be tricky to navigate if the price of your contract does not match up with the appraised value of your home. Now you have the dreaded appraisal gap. With the increasing prices of homes, the appraisal gap seems to be the norm more than the exception in today’s home market.
According to recent data roughly twenty percent of homes had their appraised value come in below the contract price. If an appraisal comes in below the contract price, the buyer’s lender will not loan them more than the house’s appraised value. If the appraisal comes in low, this means there is going to be a gap between the loan amount that the buyer can secure and the contract price on the house.
In this situation, both the buyer and seller have a vested interest in making sure the sale moves forward. The seller will want to make sure the deal closes, and the buyer will not want to risk losing the home. That’s why it’s common for sellers to ask the buyer to cover all or some of the difference themselves in this competitive market. This appraisal gap amount is money the buyer will have to pay out of pocket.
When offering or accepting a purchase agreement with an appraisal gap, both sides need to work with their realtor to make sure they understand and are comfortable with the offer at hand. Be sure that the offer you are presenting as a buyer or accepting as a seller make sense to you.
No matter what side you are on, buying or selling your realtor is there help you navigate this process.
By R. Jones
