What is an Appraisal Gap you ask? An Appraisal Gap is when a buyer offers more money for the house than the appraiser states the home is worth. How does this happen? In today's NH housing market, we have more buyers than we do homes for sale. When a property goes on the market if the property is in good shape there will be multi buyers looking at the property. There is a strong chance there will be multiple offers, with a good number of the offers being over the asking price. The offer the seller feels is best for them is selected and this start the home sale process. Negotiation of the P&S, setup the inspection then off to the bank/mortgage company for approval. That is when the appraisal is requested, if the home should not appraise for the offer amount you will experience the appraisal gap. who should pay for the difference? Right now, it's a sellers' market so all signs point to the buyer footing the bill.
Example: Purchase price $325,000.00 with 5% down $16,625.00. Property appraised value: $305,000.00 5% down 15,250.00. Difference between purchase price and appraisal $20,000.00 Total cash needed down payment and Appraisal Gap $35,250.00
1. You are putting down a larger than needed downpayment in hopes to keep your mortgage payment lower. You could use some of this money to pay for the Appraisal Gap. However, this would cause you to pay a higher monthly loan amount. Also, this might cause the lender to have to add mortgage insurance to your loan. This protects the lender not the buyer. the buyer just pays for it.
2.Request the seller to lower the price to the appraised value.
3.Ask the seller to split the difference.
4. Terminate the deal.
Sellers will be starting to look for the Appraisal Gap Clause in the P&S. Should buyers add the Appraisal Gap Clause? If yes, you will be willing to pay more for a home than the market determines its worth? If no are you willing to lose the deal over a low appraisal. This is going to be a buyer-by-buyer decision. One buyer may be able to afford to and another may not be able to.
The cost of living keeps raising as pay stays the same or with little increase. It's my opinion we need to make sure we do not get too greedy put ourselves back to where we were in 2004.We need to work together and look out for each and our family's the best we are able too. Stay Safe Everyone...