The Appraisal Gap

We’ve been hearing a lot about the Appraisal Gap lately and how buyers have been using it to win in multiple offer situations but what is it and what does it mean?

The appraisal gap comes into play when the home appraises at a lower value than your offer price. When this happens in a normal situation you have options. You can pay the difference in cash between the appraised value and your offer or you can try to renegotiate a lower price with the seller. The first option assumes you have the cash to make this work and keep it together. The second option requires a seller who is willing to negotiate.

If the seller is not willing to negotiate you can request a second appraisal, which does come with an additional cost. The downside to this is that all parties need to agree because it may delay the transaction and the close date. If the parties don’t agree the transaction is cancelled due to the appraisal contingency clause.

If you have included an appraisal gap clause with your offer, you would automatically adjust the sales price and move forward. The appraisal gap clause was popular for sellers because it came with less risk of the deal falling apart and the seller having to go back on the market.

Using the appraisal gap is not always an option for buyers and some just simply don’t like the idea of paying more for the house than what it appraises for. This is why it’s important in a real estate transaction to understand all your options and what they mean for you.