The residential real estate market is not quite as aggressive as it was a few years ago. Buyers are less likely now to face aggressive bidding wars the very first day that a property is on the market. However, the most competitive listings may still see multiple buyers making offers.
Unless those looking to buy real estate can come to the table with cash, they need to consider a mortgage lender’s perspective as they make offers on the property. Specifically, they may need to prepare for the possibility of an appraisal gap if they make an assertive offer on a property.
What is an appraisal gap?
An appraisal gap is the difference between the amount offered for the property by the buyer and the estimated fair market value set by a professional appraiser. Lenders may refuse to finance a property where there is an appraisal gap or may limit the amount of financing they provide based on the appraiser’s report.
How can buyers avoid appraisal gaps?
There are three ways to address appraisal gaps. The first is to avoid an appraisal gap by tracking market conditions and ensuring that bids do not go above recent sale prices for comparable properties.
The second involves retaining cash resources to cover the gap between the financed amount and the sale price. The third option may involve partnering with another mortgage lender. A new mortgage company may require a new appraisal, but there is never any guarantee that a second appraisal returns a higher value for the property.
Being prepared for the issues that arise in a residential real estate transaction can help buyers limit their exposure and the likelihood of a closing falling apart at the last minute. Buyers often need support to protect themselves with custom documents and review documents before they make a formal commitment, and that’s okay.
