When supply is low and demand is high, prices naturally rise and that’s what’s happening in today’s Real Estate Market. Home prices are continuing to appreciate at near-historic rates, which creates challenges when it comes to home appraisals.
In the last few months, it’s become increasingly common for an appraisal to come in below the negotiated contract price. This difference is known as the ‘appraisal gap.’
With the heightened buyer demand, purchasers are often willing to pay well over asking price in order to secure their dream home, especially in today’s market. When the appraiser comes in, they look at things a little differently. Their job is to assess the inherent value of the home and to remain that ‘unbiased’ third party.
To put it simply, while homebuyers may be willing to pay more, appraiser are there to assess the market value of the property. Their goal is to make sure that a lender isn’t loaning more money than a home is actually worth.
The bottom line is to get a good understanding of an appraisal gap, because it may impact your transaction whether you are buying or selling. If you do happen to encounter an appraisal that is below your negotiated contract price, typically in today’s market, its most common for the seller to ask the buyer to make up the price difference. So, buyers, be prepared to bring extra money to the table if you really want to purchase the home.
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