What Buyers and Sellers Need to Know About the Appraisal Gap

It’s economy 101 – when supply is low and demand is high, prices naturally rise. That’s what’s happening in today’s housing market. Home prices are appreciating at INSANE rates, and that’s creating some challenges when it comes to home appraisals. In recent months, it’s become increasingly common for an appraisal to come in below the contract price on the house. Appraisers have recently oberved buyers paying above listing price AND HIGHER than the market data supports (CoreLogic).

So you’re asking yourself….”why does an appraisal gap happen?” Well, while homebuyers may be willing to pay more, appraisers are there to assess the market value of the home. Their goal is to make sure the lender isn’t loaning more money than the home is worth. It’s objective, rather than emotional. What this means for you is – knowledge is power. The best thing you can do is understand appraisal gaps may impact your transaction if you’re buying or selling. If you do encounter an appraisal below your contract price, know that in today’s seller’s market, the most common approach is for the seller to ask the buyer to make up the difference in price. Buyers, be prepared to bring extra money to the table if you really want the home.

Above all else, lean on your real estate agent (ME!). Whether you’re a buyer or seller, your trusted advisor is your ally if you come up against an appraisal gap. I’ll help you understand your options and handle any additional negotiations that need to happen.