How to Bridge the Appraisal Gap in Today’s South Florida Real Estate Market
TV is not the only place to find Drama these days. Tune in to the
real estate market, where the competition among buyers is fierce. And with homes selling for record
highs, the appraisal process is receiving more attention than ever.
That’s because, in a rapidly appreciating market, a property is more likely to
appraise below the sales price—in Fort Lauderdale, Oakland Park, and Wilton
Manors which can lead to major repercussions for both buyers and sellers.
It’s never been more
important to understand the appraisal process and the risks involved. It’s also
crucial to work with a skilled real estate agent who can guide you to a
successful closing without overpaying (if you’re a buyer) or overcompensating
(if you’re a seller). Find out how appraisals work—and in some cases, don’t
work—in today’s unique real estate environment.
In most cases, a licensed
appraiser will analyze the property’s condition and review the value of
comparable properties that have recently sold. Appraisal requirements can vary
by lender and loan type, and in today’s market, in-person appraisal waivers
have become much more common. If you’re applying for a mortgage, be sure to ask
your lender about their specific terms.
APPRAISALS IN A RAPIDLY SHIFTING MARKET
An appraisal contingency is a standard inclusion in a home offer. It enables the buyer to make the closing of the transaction depending on a satisfactory appraisal wherein the value of the property is at or near the purchase price. This helps to reassure the buyer (and their lender) that they are paying fair market value for the home and allows them to cancel the contract if the appraisal is lower than expected.
Low appraisals are not common, but they are more likely to happen in a rapidly appreciating market, like the one we’re experiencing now. That’s because appraisers must use comparable sales (commonly referred to as comps) to determine a property’s value. This could include homes that went under contract weeks or even months ago. With home prices rising so quickly, today’s comps may be lagging behind the market’s current reality. Thus, the appraiser could be basing their assessment on stale data, resulting in a low valuation.
HOW ARE BUYERS AND SELLERS IMPACTED BY A LOW APPRAISAL?
When a property appraises for less than the contract price, you end up with an appraisal gap. In a more balanced market, that could be cause for a renegotiation. In today’s market, however, sellers often hold the upper hand.
That’s why some buyers are using the potential for an appraisal gap as a way to strengthen their bids. They’re proposing to take on some or all of the risk of a low appraisal by adding gap coverage or a contingency waiver to their offer.
Some buyers with a higher risk tolerance—and the financial means—may be willing to waive the appraisal contingency altogether. However, this strategy isn’t for everyone and must be considered on a case-by-case basis.
It’s important to remember that waiving an appraisal contingency can leave a buyer vulnerable if the appraisal comes back much lower than the contract price. Without an appraisal contingency, a buyer will be obligated to cover the difference or be forced to walk away from the transaction and relinquish their earnest money deposit to the sellers.
It’s vital that both buyers and sellers understand the benefits and risks involved with these and other competitive tactics that are becoming more commonplace in today’s market. We can help you chart the best course of action given your individual circumstances.
DON’T WAIVE YOUR RIGHT TO THE BEST REPRESENTATION
You need a master negotiator on your side who has the skills, instincts, and experience to get the deal done...no matter what surprises may pop up along the way.
If you’re a seller, we know how to get top dollar for your home while minimizing hassle and stress, and if you’re a buyer, we can help you compete in this unprecedented market—without getting steamrolled. . For over 20 years we have been helping our clients Sell, Purchase, Invest and Lease in Fort Lauderdale, Oakland Park, and Wilton Manors. Contact us today to schedule a complimentary consultation.
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