Due to a lack of inventory in today's housing market, many homes are selling for more than the asking price and in some cases, much higher than comparable ones. While this may be good news for sellers, there's always the possibility a home will not appraise for the offer price. This is where understanding what an Appraisal Gap is becomes important.
What Is An Appraisal Gap
If the buyer is using a lender, the lender may require an appraisal to ensure that the buyer is not overpaying for the home. This is when a licensed appraiser independently evaluates the home and establishes its market value. After the appraisal is complete, the difference between the offer price and the appraised price (if different) becomes known as the appraisal gap. When this happens, a buyer can write in their offer a specific amount or a blanket amount that they are willing to cover if necessary
For example, if the home is listed for $300,000 and the accepted offer is $340,000 and the buyer includes a $25,000 appraisal gap, as long as the home appraises for $315,000 then the purchase price will stay at $340,000 and the buyer will bring $25,000 extra to closing. If however, the home only appraises for $300,000, then the new price would be $325,000 unless the buyer was able to come to the table with more money or the buyer and seller agree to terminate the transaction.
Why Does It Matter
For sellers, it would be good to know before accepting an offer, especially one that is over the asking price, what the buyers would do if the home was to under-appraise
If you're a buyer and want to make sure your offer is more likely to be accepted, it is good for you to be familiar with the appraisal gap, especially if your offer is over the asking price. While the price may be important, an extremely high offer price may not be the best plan if you're not able or willing to back it up should the home not appraise at that price.
If you are thinking about selling a property, it is a good idea to work with a team that has experience with appraisal gaps as well as other tools to help you in the selling process.
Learn More About Appraisal Gaps
The Amy Team of Realtors in Aurora, OH fully understands the importance of the appraisal process and how being prepared for an appraisal gap can make a tremendous difference in helping to close a deal, whether buying or selling.
Not only have we helped our sellers get the protection of an appraisal gap on their incoming offers, but we have also helped our buyers structure appraisal gap deals to help them successfully win in a multi-offer bidding war.
If you have questions about appraisal gaps or want to start a conversation about buying or selling a home, please feel free to call Amy @ (330) 562-4409 or send us a message via our Contact Us page and we'll contact you.