What Redlands Home Sellers Need to Know About the Appraisal Gap

When you’re selling your home and offers start coming in, it can be appealing to accept the highest offer and move on. To begin learning how things can become complicated if a bidding war gets too out of control in a seller’s market, let’s go over what Redlands home sellers need to know about the appraisal gap:

Determining Your Home’s Appraised Value

It’s common for someone unfamiliar with the operations and terminology of the real estate world to quickly get confused, or make inaccurate assumptions. 

For instance, you will often run into both buyers and sellers who believe an appraisal is the end-all and be-all way of establishing the value of a property. While an appraisal is a service performed by a trained professional as a way of finding out the value of a property, that doesn’t mean the resulting value is exactly what someone should pay for your home. 

This is where we bring in another important term: market value. The appraised value is what is figured to be the general value of the property but the market value is what someone is actually willing to pay for it. 

Understanding the difference is important because we live in a time where the market value of a home is oftentimes going to be greater than the appraised value. This means that in the modern real estate market, you will frequently see buyers paying more than the appraised value for a home.

The Appraisal Gap

Now that we know the difference between the appraised and market values of a home, what is this mystical appraisal gap, and why does it matter? 

The appraisal gap occurs when a buyer’s offer comes in higher than the appraised value of the property. Or – using our previously-defined terms – the market value (the buyer’s bid) is higher than the appraised value. 

This matters in cases where the buyer is attempting to secure financing through a mortgage lender. The reason this appraisal gap can be very bad for you as the seller is because their mortgage lender wants to do their best to approve loans that are safe bets. The last thing a lender wants to do is give out a nice big loan on a property that is worth less than the value of a loan. 

The reason for this is, in the event the buyer defaults on their mortgage, the lender is then left with a property valued lower than the loan, and they take on that difference as a loss.

Possible Solutions

The most common way for a buyer to overcome the appraisal gap is to buy their way out of the predicament by paying for the difference, but not all buyers will be able to swing that additional funding so readily. 

Depending on where you live and the requirements of the buyer’s lender, you could be able to waive the appraisal entirely. However, this is highly unlikely as a lender worth their salt will want the appraisal done as a protection on their potential investment. 

One of the most active ways you, as the seller, can be involved to help keep the transaction alive is to renegotiate with the buyer. This may seem like you’re leaving money on the table, but if the agreed sale price of your home were lowered to a point where the buyer could then pay off the appraisal gap, you’re not losing out on everything.

Help Navigating the Appraisal Gap in Redlands

Understanding the ins and outs of buying and selling a home can be confusing, especially if you’ve never been through the process before. If you’re looking to buy or sell in Redlands and want help navigating the appraisal gap, contact us today at (951) 232-9704!

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