Episode 7: What is an Appraisal Gap?
Posted by Emily Otto on Wednesday, May 5, 2021 at 9:07 AM By Emily Otto / May 5, 2021 Comment
The market remains very tight with low inventory and high demand. It's been a constant theme for some time now. Buyers are being outbid left and right and feeling disheartened by the sight of their ideal homes being picked up by a competing offer. Buyers should consider not only putting their highest and best offer, but also this winning clause in a multiple offer situation:
Appraisal Gap Coverage
Appraisal gap coverage is when you agree to cover any shortage between the offer price and the appraised value. It’s written into your offer and often includes a specific number of how high will go.
Adding an appraisal gap to your offer tells the seller that even if the property appraises for less than the purchase price in the contract, you are committing a preset dollar amount to make up the shortfall. This is important because it’s common to go over the asking price in a bidding war, and even though you say you will pay a certain amount, the bank will not lend you more than the appraised value of the home. This means you have to have the cash on hand to make up the difference.
Please reach out if you’d like to learn more about this financing strategy and other ways to help you remain competitive in this market.
If you also have anyone looking to get pre-approved to purchase a home or refinance, we’d love the opportunity to serve them!
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