Appraisal Gap Coverage

We all know the market is hot, right? I’m sure you’ve heard the good and the bad when it comes to buying a house right now. In most areas, a good home priced right will sell quickly. In some cases, the sellers will get multiple offers they have to choose from. So what offer will stand out the most?

Think about it for a minute. If you’re a buyer who is financing their mortgage, there will almost certainly be an appraisal done on the property. Let’s just say for example, a house is listed at $200,000. The sellers received 2 offers. One at $200,000, the next at $220,000.

In this example, you’re the buyer who offered $220k.

If the appraiser says the home is worth $200k, that means your offer at $220k goes back down to $200k because a bank/lender will not loan more than what the appraiser determines it is worth. That may sound great to you as a buyer, but for the sellers.. that’s not what was agreed to technically.

So… buyers have a chance to set themselves apart if they keep all of that in mind. Lets rewind and say that you offered $220k, but this time you put in an appraisal gap clause of up to $5,000. This clause means that if the appraiser determines the property is worth $200k (or any amount below what you’ve offered) you will bring up to $5,000 to offset the difference.

RECAP: You offered $220k on a house that’s listed at $200k. You include an appraisal gap clause in your offer of up to $5,000. The appraiser says the property is worth $200k, so now the purchase price will be $205k. Happy sellers, happy buyers.

** Keep in mind that the cash you are offering at closing to offset an appraisal gap does NOT include the cash you’ll need for closing and/or down payment costs.