One of the best ways to stand out with an offer is to add an appraisal gap and here is why... One important step when you are under contract to purchase a property is the appraisal. The lender has an appraiser go to the property and gives it an evaluation. If the appraisal comes in higher than the agreed upon purchase price, pop the champagne and celebrate! In the event the appraisal comes in low there are several events that can take place all of which are bad news.
The lender will only loan you money based on the appraised value. Meaning if you agree to make a purchase for $450,000 and it appraises at $425,000 several scenarios can happen:
1) Seller lowers price to accommodate the buyers needs.
2) Buyers will pay some amount of the difference of the appraised value and the agreed purchase price (Appraisal Gap)
3) Buyer and seller cannot agree on a price and fall out of contract.
In scenario #2 this is where your appraisal gap comes into play. This is most common when you make an offer over asking price like in todays current market. Appraisal gaps are added into an offer before you go under contract so if the situation arises, there is a pre-agreed solution to it.
Examples can be:
Full appraisal gap coverage: Buyer will pay $450,000
Buyer will provide an appraisal gap of $10,000: Buyer will pay $435,000
No appraisal gap: Buyer will pay $425,000
This will require you to put more money up for your down payment but will allow your offer to stand out from the others the seller receives.
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