Here’s what you need to know about appraisals, gaps, and contingencies.
We’re often asked about what happens when a home’s appraised value does not meet the purchase price. Keep in mind that an appraisal is different from an inspection, which determines the condition of the property—people often get these terms mixed up. An appraisal, on the other hand, determines the value of the property.
Today I’m joined by Ryan Paquin of First Home Mortgage, and he’ll be explaining what’s happening with low appraisals in our market. Ryan works with buyers to determine what kind of offer they can make in regard to the appraisal and appraisal contingency.
“Some people are paying in cash or completely waiving the appraisal contingency.”
In many situations, buyers will make an offer at the home’s asking price but also have an appraisal contingency that allows them to renegotiate if the appraisal comes in low. Others are making offers that are higher than the asking price in order to get closing cost assistance from the seller. Some are going above the asking price, not asking for closing cost assistance, and offering to pay the difference if there’s an appraisal gap. So, if a home sells for $410,000 but is only appraised at $400,000, the buyer will pay the difference out of pocket.
Finally, some people are paying in cash or completely waiving the appraisal contingency. This means they’ll pay the difference in the appraisal gap, no matter how big it might be. This is the strongest offer possible, as the seller doesn’t need to worry about what the appraisal comes in at.
I’d like to thank Ryan for his helpful insight. If you have any questions or would like more information, feel free to reach out to me. I look forward to hearing from you soon.
