It can take many weeks, often more than a month, to go from an accepted offer to a successful closing on a piece of real estate. Many people want to celebrate when their real estate agent tells them the seller accepted their offer, but plenty can go wrong before you reach the closing table.
For those who will finance the transaction with a mortgage, an appraisal is a necessity. Those who pay entirely out of pocket for a home may also insist on an appraisal to ensure that the property is worth the amount they intend to pay.
Do you have to worry about an appraisal gap completely derailing your closing process?
An appraisal gap can cause financing issues
An appraiser is a professional who has a good eye for the condition of a property and the intelligence to thoroughly review the local market to establish a fair market value. Looking at comparable properties and how much they sold for can help an appraiser determine what the property in question is actually worth.
When a buyer offers more for the property than an appraisal determines it is worth, the transaction has an appraisal gap. When the appraisal occurred at the behest of the buyer who finances their own transaction, they might choose to reconsider the sale or to move forward depending on the size of the gap and whether they included an appraisal contingency in their initial offer.
If it is a financed transaction, the situation is much harder to resolve. Buyers either need to come up with thousands of dollars in a short amount of time or renegotiate the sale price, neither of which may be a realistic solution.
The best solution involves avoiding an appraisal gap
It isn’t easy to know what to offer when looking at a property, especially if it seems perfect for your needs. Offering a little extra could seem like a way to make your offer stand out from many others. However, an accepted offer does nothing to benefit you if you can’t follow through with the purchase.
Buyers who don’t have cash reserves to cover a significant appraisal gap should inform their agent of that when discussing how much to offer on the property. Their agent can then help them make an appropriate offer given the circumstances.