Special offer

What is an Appraisal Gap?

By
Real Estate Broker/Owner with House to Home, Inc. - Denver Real Estate - 720-231-6373 DRE# ER40011786

 

In Denver right now, there are limited listings for the number of buyers looking for homes.   This is causing multiple offers, and many offers are way over list price.   When you work for the buyer, you HAVE to do comparables to see if the list price is "fair market value", which is what an appraisal would come in at.


Right now, we are seeing offers coming in THOUSANDS more than list price, and buyers should address whether they are able to make up the difference between the appraised value and their contract price. The lender will only lend the appraised value, so if a buyer offers $50k more than list price, the difference needs to be addressed. IF the buyer is willing to make up this difference, this amount will be needed at closing, ALONG WITH their down payment and closing costs.


It is IMPERATIVE for buyers to review their financial situation to know what they are offering and what will be expected.  Will they be upside down financially when they move in?   Yes, they will. BUT, right now homes are appreciating quickly (in March the metro area averaged 15% increase). If a buyer is planning on remaining in a property for over one year, they should make up this amount. BUT, if a buyer loses their job or something happens and they HAVE to sell, they most likely will be upside down and need to bring money to closing.

I was hoping as we got into the true spring, we would see an uptick in new listings, but so far, the week of April 10th had the most new listings, and has not topped that amount since.    

 

 

Posted by

Joan Cox
Broker/Owner, REALTOR®
House to Home, Inc.

Serving the Denver Metro area including all suburbs


Helping Buyers and Sellers achieve their real estate dreams, one house at a time!

LinkedIn  |  Facebook  |  YouTube
About Me  |   My Blog
       My Website

720-231-6373  
Call or Text Me!

Email Me!

 

Comments (34)

Hannah Williams
HomeStarr Realty - Philadelphia, PA
Expertise NE Philadelphia & Bucks 215-820-3376

Joan Cox  I started selling RE in an appraisal office and I was taught it was one person's opinion of value.  Prices and value  here  are rising steadily = supply and demand house is only worth what a person is willing to pay for it  

May 12, 2021 01:03 PM
Kathy Streib
Cypress, TX
Home Stager/Redesign

Hi Joan- I'd imagine that it's hard for a buyer to pay so much more for a property. Concerns are real...what happens if they are relocated?  So many questions. 

May 12, 2021 06:35 PM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Nina Hollander, Broker we are seeing about 15% equity increases, and expect to see homeowners recoup their dollars in probably one year also.

May 13, 2021 10:37 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Michael, there is always a conversation that must take place, some are just longer than others.

May 13, 2021 10:37 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Jeff, I always thought it was to protect the market, so it doesn't get way too overinflated too quickly.

May 13, 2021 10:38 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

We must share this info Roy, you are right.

May 13, 2021 10:38 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Ed, it is a tough market anyway you want to look at it! 

May 13, 2021 10:39 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Hannah, that was good experience right off the bat.

May 13, 2021 10:39 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Kathy, at this point, I do not have anyone coming in that could be relocated anytime soon, thankfully.  That would be another conversation to have with the buyer.

May 13, 2021 10:40 AM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

We just closed one that had a $20,000 guarantee appraisal gap filler ( and was $25,000 over List Price)

May 28, 2021 04:39 AM
Steve Schultz
KW Smart Lakeland - Lakeland, FL

Hi Joan, thank you for your post -- very good information!

-- Steve

May 28, 2021 05:17 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Michael, we have seen some good-sized appraisal gaps, sounds like you have too.

May 28, 2021 05:51 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Thanks Steve! 

May 28, 2021 05:51 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

We have seen a some very large appraisal gaps --- over $100K.

May 28, 2021 05:52 AM
Carla Freund
Keller Williams Preferred Realty - Raleigh, NC
NC Real Estate Transition & Relocation 919-602-848

Joan, our appraisers are working overtime to make the gap smaller but sometimes their guidelines just don't work out. We do see appraisal gaps and we have buyers who are willing to pay the difference just to win a contract. That is what resets the values for the next buyer.

May 28, 2021 08:18 AM
John Pusa
Glendale, CA

Hello Joan Cox each appraisal has different method apprising a property, which can cause some issues with value. Great post on appraisal gap.

May 29, 2021 11:03 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Carla, we are seeing values being reset all over the Denver metro area, as many buyers are doing an appraisal gap.

May 29, 2021 11:06 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

John, it just is amazing sometimes two different appraisers can come up with two amounts, vastly different.

May 29, 2021 11:07 AM
Troy Erickson AZ Realtor (602) 295-6807
HomeSmart - Chandler, AZ
Your Chandler, Ahwatukee, and East Valley Realtor

What a great post Joan Cox! It is important for any home buyer to understand how appraisals can impact their purchase up front, so there are no surprises when the appraisal comes, after an offer has already been accepted.

Jun 18, 2021 06:13 PM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

I agree Troy, plus they need to know how much they are on the hook for at closing.  

Jun 20, 2021 12:20 PM