Getting your offer to stand out is a challenge in today’s real estate market. There isn’t enough supply for all the people who want to buy, so buyers have to compete with one another.
Buyers may make offers well over the asking price for a property to entice the seller to pick their offer. Other times, they might waive inspection requirements or allow the seller to retain possession after closing for an extended amount of time.
Trying to come in with a higher offer than the asking price has become a popular strategy for those buying in the current market. Unfortunately, when you offer a lot for a property, there might be an appraisal gap that derails your closing.
What is an appraisal gap?
An appraisal gap is the technical term for a situation where a buyer offers more for the property than the appraiser believes the property is worth. Essentially, an appraisal gap put lenders in a difficult position where they could lose a lot of money if they eventually foreclose on the property.
How can you avoid an appraisal gap?
The asking price for the property likely reflects not only what the seller thinks is its fair market value but also what they believe a mortgage company will finance. Choosing not to make offers that are significantly over the asking price will reduce your likelihood of having an appraisal gap. Keeping enough cash reserves on hand to cover that gap could be an alternate approach.
Identifying potential problems before they occur will increase your chances of success when you are purchasing real estate.