What Is An Appraisal Gap?
An appraisal gap is when a lender ordered appraisal comes in lower than the contracted sales price. It happens in competitive markets such as ours where buyers typically need to bid over the asking price in order to be successful in purchasing a home. According to the NH Assoc. of Realtors latest data thru June, homes in NH are selling at 102.9% of the listing price. A low appraisal decreases the amount that can be borrowed and buyers are faced with how to make up this difference. For example, if a seller agrees to accept an offer of $410,000 on a home listed at $400,000 but it appraises for $390,000, there will be an appraisal gap of $20,000. There are a few options buyers can try to keep the sale together:
1) Make up the difference in cash (consider gift funds from family or borrowing against a 401K if short on cash), 2) Shift the down payment so you end up borrowing more money and putting less into the down payment - with lender approval, 3) Appeal the appraisal if there is incorrect information or bad comps, 4) Renegotiate with the seller.
Good agents will discuss the concept of low appraisals with buyers and sellers before offers are even made. Many offers with financing are written to say buyer will pay the difference between the appraised value and contract price up to a certain amount. Contact me to work with someone who will prepare you for the “what ifs” in this competitive market.