In a competitive housing market there is a saying that you may have heard before which is "Cash is King". The meaning of this is that a cash offer is considered a done deal without financing or an appraisal contingency that are common in many offers. Cash deals are often viewed as the superior offer but many times a cash buyer offers less than the asking price because they use their cash offer as a powerful negotiating tool and in a lot of sellers minds accepting a cash offer is a guaranteed sale.
However, there is another way to compete with cash offers and you can beat out most offers that have a financing contingency by using something called an 'Approval Gap Coverage". The ideal behind an appraisal gap coverage is that you make a great competitive offer and you agree to cover an shortage in the event your offer is higher than what the home appraises for. Here is an example:
- House is listed for $200,000 and it is a hot house that is in serious demand..
- You make an offer of $210,000 and you are pre-approved for financing and you add add "Appraisal Gap Coverage" to your offer.
- For example: You offer $210,000 and the house only appraises for $200,000 and you agree to pay the difference between the appraisal and your contract price in cash meaning you will make up the difference which in this case would be $10,000.
The benefit of offering the appraisal gap coverage in your offer is that the seller will feel that your offer will successfully close even if the home doesn't appraise for the purchase price. Most sellers don't want to accept an offer that is a "MAYBE". Most sellers want to bet on a sure thing and in their eyes your offer with appraisal gap coverage is superior to a competing offer that requires the house to appraise in order for them to get their loan. If you are in a competitive multiple offer situation and you have some extra cash in reserve you may want to give the appraisal gap coverage some thought.
Sam Miller of REMAX Stars Realty 740-397-7800 SamMillerSells.com
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