Definition and Examples of Appraisal Gap
An appraisal gap is the difference between the estimated value of a home and the contracted price of that home. The appraisal gap is a term that describes the difference when the appraisal is lower than what is offered. This is common in a booming market.
How Does an Appraisal Gap Work?
Once an appraisal gap occurs, there are two paths available to deal with it. The first method involves making a reservation about the estimated value as is after receiving the appraisal report, while the second method involves accepting that value and determining how to proceed from there.
Dealing with an Appraisal Gap
If your appraisal results in an appraisal gap, the first step is to read the report in detail to understand how the appraiser determined the home’s value. There may be steps to dispute the appraisal if the buyer and the real estate agent see ways the report may have erred, such as not considering local market trends.
The Meaning of the Gap in Home Buying in Competitive Markets
Many sellers prefer cash offers because they do not rely on the appraisal value. Competitive markets tend to see more cash offers, making it difficult for buyers to compete. Buyers in competitive markets may choose to include a clause about their willingness to pay the appraisal gap in their offer, and the amount of the gap they may be willing to cover. A real estate agent may help them decide whether to include the clause based on their situation.
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Source: https://www.thebalancemoney.com/what-is-an-appraisal-gap-5220008
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