Why You Should Be Prepared For An Appraisal Gap In Today's Housing Market

Buying your first home can be an overwhelming process, especially when the market is increasingly competitive, as it has been recently. A competitive market means higher appraisal gaps, which can cause problems for buyers who are depending on a mortgage to purchase their new home. Pacres Mortgage informs that an appraisal gap is the gap between the market value of a home and the actual price of the home.

The issue of this gap lies with the loans the bank provides in order for someone to purchase a home with a mortgage. The bank will only provide loans that cover the market value of the home but not the actual price of the home. This means that if a home costs more than its market value, it's up to the buyer alone to pay for the gap out of pocket before they can actually claim the property (per Roofstock). A competitive real estate market means that the price of homes is increasing above their market values due to the abundance of buyers but lack of sellers. This issue is causing financial difficulties for people who are relying on a mortgage to pay for their homes. As the real estate market becomes increasingly more competitive as the year continues, many future home buyers are worried and stuck wondering how they will be able to manage the gaps.

Handling appraisal gaps can feel like an impossible task, but Realtor.com shares several ways you can easily push through the gap and move on to actually purchasing your home. First, they suggest including a clause about the appraisal gap in your offer of the house. This clause should mention the actions you will be taking in regard to the gap if one should appear. Including this clause can help you steadily pay off that gap without any issues from the sellers who signed off on that clause.

You are also allowed to appeal appraisals, which brings a third party to the scene to reassess the home. Through these actions, you can only hope that the new assessor will find the home at a higher market value than the previous one because the higher the market value, the more money the bank will be able to give out as a loan to purchase the home.

Throughout the home buying process, the price of the home is always open for adjustment, as well. That being said, if the appraisal gap is relatively large, you can always go back to the seller and try to renegotiate the price of the home. But at the end of the day, if that particular seller is not willing to lower the price and the appraisal gap remains too high for your budget, you can always walk away from the sale and try again with another home.