In a very competive real estate market home buyers are needing to be as competitive as possible to buy their new home. As buyers start bidding wars the purchase price can rise about an appraised value. That is when buyers offer appraisal gap coverage. So, What is an Appraisal Gap?
When a buyer offers an appraisal gap, basically they are saying that they are willing to cover the difference in the appraised vale and the offer price.
This is need if the bank said they would loan 80% of the value of the house (meaning the buyer needs to put 20% down). If the buyer offered $110,000 but the appraisal came back at $100,000, the bank is only going to lend 80% of the $100,000 or $80,000. So the buyer would need to come up with $30,000 cash. $20,000 for the regular downpayment and an additional $10,000 for the appraisal gap.
The need for an appraisal gap happens when prices are going up so quickly that the appraisers numbers for closed sales aren’t keeping up with the prices of the current market. If you have the cash to offer an appraisal gap it makes your offer mich stronger. The seller wants that protection to know that if the appraisal did come back low, you would cover the appraisal gap.
If you have more questions about buying a home in Northern Colorado, inclusing Fort Collins, Loveland, Windsor or Greeley reach out to me directly at 970-203-5066 or through the forms on this website. I’d be happy to answer any more of your questions.
*Andy Hawbaker is a Licensed Realtor with 8z Real Estate in Windsor, CO*