Why Should You Care About Home Appraisals as a Buyer?

During the homebuying process, the buyer has been pre-approved for a specific amount (loan) to negotiate with. In the event the home’s value is lower than the offer (as determined by comparable properties and the home appraiser), the bank will lend up to only the appraised value. An appraisal gap occurs when the value of the home is “less” than the offer.

When an appraisal gap occurs, the buyer has the following options:

• Pay the difference in cash between the appraised value and the amount of your offer.

• Walk away from the offer assuming the buyer has an appraisal contingency in the purchase contract

• Renegotiate or perhaps split the difference with the seller

• Request a review of the appraisal if you find inaccuracies (i.e. square footage, school districts, etc.)

• Apply with another lender in hopes that it will hire an appraiser who values the property in your favor.

The Bottom Line

Regardless of your plan of action when faced with an appraisal gap, you’ll want to speak with your real estate agent and lender to make informed decisions.

Considerations: Article has been modified and adapted from Nerdwallet.com, Rocket Mortgage, Zillow, and Investopedia.