It can be a long search looking for the right home. Whether you have very specific requirements for your garage because you like to fix up classic cars or you need certain amenities in the kitchen because you are a private chef, you might look at a dozen houses in person and hundreds of them online before you find one that you want to make an offer on and potentially purchase.
Especially if it is the only home on the market in a certain neighborhood or offered at a competitive price, you may worry about other buyers outbidding you or offering better terms. Unfortunately, you may also end up in a situation where your best offer on the property is also higher than what an appraiser thinks it is worth.
What happens if the appraiser for the property comes in below the sale price?
There are many potential remedies for an appraisal gap
When you offered more for the property than it is worth based on its condition and comparable properties in the area, you have an appraisal gap. The gap might just be a few thousand dollars, or it could be a substantial amount. Some people will be able to simply pay the difference, which is certainly the fastest solution for resolving an appraisal gap.
Those who cannot raise the full amount may need to attach to negotiate with the seller. The appraisal gap likely means that a similar issue would arise in any other offer of a similar amount unless the other buyers offer cash. Sellers may willingly meet a buyer halfway to resolve an issue with a low appraisal.
Sometimes, buyers who cannot compromise with the seller will try applying for a different mortgage. The second mortgage company would send out a different appraiser, which might potentially lead to more favorable results.
Protecting yourself from an appraisal gap
Since you never know when the market might change and make the offer that you made for a property seem unreasonable, it is often crucial for buyers to protect themselves by including contingencies and their offer. An appraisal contingency would allow them to cancel the closing and retain their earnest money if the appraisal doesn’t meet their offer, while a financing contingency would allow them to cancel without penalty when they can’t secure a mortgage.
Identifying and planning for complications that could delay or cancel residential real estate closings will help those hoping to soon become property owners.