What Buyers and Sellers Need To Know About the Appraisal Gap

By
Real Estate Agent with Champion Real Estate Group 0561240

Its economy 101 when supply is low and demand is high, prices naturally rise. That's what's happening in todays housing market. Home prices are appreciating at near-historic rates, and that's creating some challenges when it comes to home appraisals.

In recent months, its become increasingly common for an appraisal to come in below the contract price on the house. Shawn Telford, Chief Appraiser for CoreLogic, explains it like this:

Recently, we observed buyers paying prices above listing price and higher than the market data available to appraisers can support. This difference is known as the appraisal gap . . . .

Why does an appraisal gap happen?

Basically, with the heightened buyer demand, purchasers are often willing to pay over asking to secure the home of their dreams. If you've ever toured a house you've fallen in love with, you understand. Once you start to picture yourself and your furniture in the rooms, you want to do everything you can to land the property, including putting in a high offer to try to beat out other would-be buyers.

When the appraiser comes in, they look at things a bit more objectively. Their job is to assess the inherent value of the home, so theyre going to study the facts. Dustin Harris, Appraiser Coach, drives this point home:

Its important for everyone to understand that the appraisers job in the end is to remain that unbiased third party, to truly tell the client what that home is worth in the current market, regardless of what decisions have been made on the price side of things.

In simple terms, 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. Its objective, rather than emotional.

In a highly competitive market like todays, having a discrepancy between the two numbers isn't unusual. Here's a look at the increasing rate of appraisal gaps, according to data from CoreLogic (see graph below):What

What does this mean for you?

Ultimately, knowledge is power. The best thing you can do is understand an appraisal gap may impact your transaction if you're buying or selling. If you do encounter an appraisal below your contract price, know that in todays sellers 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. Whether you're a buyer or seller, your trusted advisor is your ally if you come up against an appraisal gap. Well help you understand your options and handle any additional negotiations that need to happen.

Bottom Line

In todays real estate market, its important to stay informed on the latest trends. Lets connect so you have an ally to help you navigate an appraisal gap to get the best possible outcome.

 

 

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Comments (2)

Bill Salvatore - YVP Blog
Arizona Elite Properties - Chandler, AZ
Realtor - Valley of the Sun / golfArizona@cox.net

Shayne.

Excellant points made,  Make it a productive Thursday.  The weekend is in sight.  Thanks again for your post.  Bill Salvatore

Sep 09, 2021 05:46 AM
Kristin Johnston - REALTOR®
RE/MAX Realty Center 262-567-2455 - Waukesha, WI
Giving Back With Each Home Sold!

Great information.  Thanks for sharing and have a wonderful day!

Sep 09, 2021 06:49 AM