There is a shortage of everything in our country. Our economy is suffering because we do not have the tangible items to sell and no one to sell them. This is similar to the real estate industry. We have plenty of REALTORS® and buyers, but we don’t have inventory to sell. How do we fix this? Rumor has it interest rates may rise in 2022 which could slow down the buying process, but we need the sellers to sell. It is not their fault, they are looking for a house too and if we sell theirs, they could be homeless. Seems to be a giant circle of frustration for many.
We are still competing with multiple offers when a house comes on the market. Only one person can win the bid. Buyers are offering over asking price, eliminating inspections and trying for a quick closing. Some are even covering the appraisal gap. A home appraisal is important for you and the lender. Most home buyers don’t want to invest more in a home than it is worth. You would have negative equity right away and it would take much longer to earn positive equity. Lenders require an appraisal to ensure the collateral (the home) is high enough should the borrower default on the loan.
So, what is an appraisal gap? Well, if the home would appraise for less than the sales price, buyers are bringing cash to closing to get the home since the bank will only loan for appraised value. While no one wants to pay more than a home is worth, in a competitive seller’s market, it may be necessary. If you want your bid to outshine the others, an appraisal gap coverage clause may be necessary. The clause states how much of an appraisal gap you are willing to cover. Since there is no guarantee, an appraisal will match the agreed-upon sales price, it is often something sellers look for to know the offer will still stand even if the appraisal comes in a little low. Agree on as much as possible, putting it in writing before signing the contract to prevent stress and unnecessary renegotiations after the appraisal.
It is never pleasant to hear that you have an appraisal gap after signing a sales contract, but it is often a reality in today’s fast-paced real estate market. It is essential to protect yourself going into the contract and to have a plan on how to proceed should the appraisal come in lower. Buyers have many options, but you must choose the one that is most comfortable for you. If you are ready to start your home buying process and would like a professional to help you through every step of the way, contact your local REALTOR®!
If you are considering listing your property, now is the time. You can get top dollar for your home and maybe the buyer will include an appraisal gap. Have a wonderful week and remember to do good things!
Stephanie Lemley, 2021 MBOR President
