What Buyers and Sellers Need To Know About the Appraisal Gap

Reblogger
Real Estate Agent with The Kellstrom Ray Agency, Inc. (Est. 1948)

This is a scenario that is playing out throughout Door County, the State of Wisconsin, the United States, and elsewhere (Canada, parts of Europe, etc.).  Sellers are stating "the price is the price" in this red-hot market, so even with a financing contingency (in Wisconsin, that allows an appraiser to go on the property to appraise), Sellers are striking the Buyer's appraisal contingency in our boilerplate language, which means that the property has to appraise out to at or above the asking price (meaning, if you are putting 20% down, you are only putting 20% down).  This is a Seller advantage, but can be a Buyer disadvantage--a great disadvantage if the Buyer doesn't have more money to put down.  Read more through this excellent blog that does a thorough point of explaining the situation.   And if you're interested in buying or selling Door County real estate, let us know!  Search the entire Door County MLS or contact me privately through moredoorcounty.com today.

Original content by Shayne Stone 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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All information is deemed reliable as of date of publication and is subject to change without notice.

 

 Thank you for reading!  MaryKay Shumway, ABR®, CRS®, Realtor® loves to laugh and enjoys working with people that love the Door Peninsula.  She is a full-time real estate Broker, mother of two and a senior Broker Associate at the Kellstrom-Ray Agency, Inc. in beautiful Sister Bay, Wisconsin.  She represents listings throughout the Door County Peninsula and also represents many Buyers that want to purchase the perfect property to make Door County a part of their lives.  CONTACT MARYKAY ABOUT YOUR DOOR COUNTY PROPERTY QUESTIONS TODAY.

 

MaryKay Shumway has an extremely consistent multi-million dollar producer for over seventeen years.  Representing both listing clients and buyer clients full time, MaryKay is also a mother of two and active in the Door County community in the local school district, nonprofit groups and governmental affairs.  A member of the Door County Board of Realtors Honors Society from 2005-2020, the Door County Realtor of the Year 2008, a member of The Real Estate Group's Chairman's Circle in 2010-2015, and an member of the Coldwell Banker International Diamond Society for 2014 & 15.  She has served as President and Vice President of the Door County Board of Realtors  and as a member of its Advocacy Committee.  MaryKay is a top MLS producer and has held the position of top producer at The Kellstrom-Ray Agency, Inc. since 2016.

 

Contact MaryKay.  "As a multi-million dollar producer and senior associate at The Kellstrom-Ray Agency selling Door County real estate, I focus my balance on both  featured listings and representing Buyer Clients looking for the perfect Door County Property.  I turn Door County vacations into Door County traditions by helping you own your own Door County real estate, and I represent exceptional properties in all price points on the Bay of Green Bay, Lake Michigan, and all inland lakes and properties in between. Local experience with GLOBAL connections.  Call, text or e-mail me today."

Comments (2)

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
Jim Patton
Aspire Home Real Estate 209-404-0816 - Modesto, CA
Realtor - Stanislaus ,Merced, San Joaquin Counties

That's some good information MaryKay Shumway.  We are seeing this here too in Central CA. just like about everybody else in the country. 

Sep 15, 2021 01:36 PM