Buying
Buying
What is an Appraisal Gap?
What is an appraisal gap when buying a home in El Paso? It is the difference between the price you agreed to pay and the home's appraised value, and in a seller's market the buyer usually has to cover that gap in cash.
Quick explainer on the appraisal gap. When you buy with a loan, your lender orders an appraisal and the appraiser sets the home's value from the comps. Say a home is listed at $300,000 and, to win in a seller's market, you offer $315,000. If the appraisal comes back at $300,000, that is a $15,000 gap, and your lender will not loan $315,000 on a home worth $300,000, so you pay that $15,000 out of pocket. In a buyer's market it plays out differently, since you likely would not have had to bid over asking in the first place.
Video transcript
What is an Appraisal Gap?
What is an appraisal gap? An appraisal gap is basically the difference between the price that you agree to pay for a home and the appraised value of the home. Now, this is a very important concept to understand and let me break it down just a little bit for you here. So, if you are purchasing a home with a loan, your lender is going to do an appraisal of the property.
The appraiser is going to come out, they're going to look at the comps, and they're going to decide that the home is worth X amount. Now, let's use an example of a home for $300,000. In a seller's market, you might have to offer more to to be the winning offer. So, let's say that you offer $315,000 for the home that's listed at $300,000. You get under contract, a couple weeks later,
the appraisal is done, it comes back, and it says that the home is worth $300,000. Now, you have agreed to pay $315,000, the appraisal says it's worth $300,000. That is a $15,000 appraisal gap. Your lender is not going to give you a home loan for
$315,000 on an asset that is only worth $300,000. So, in this case, in a seller's market, you're going to have to cover that appraisal gap of $15,000 out of pocket. Okay? Now, if it were a buyer's market, it would be a different story. You would be able to negotiate that, and you probably would not have had to bid
$15,000 to get under contract anyway. However, right now, we are still in a strong seller's market, and understanding an appraisal gap is very, very important. If you have any questions about that or anything else, please reach out to us here at Peña El Paso Realty Group. Thank you so much.
