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2 ways for buyers to protect themselves from an appraisal gap

On Behalf of | Apr 17, 2023 | Uncategorized |

The New York real estate market is often one of the most robust and resilient in the country. However, recent years have led to rapid and frustrating fluctuations in real estate values. 2023 currently shows a slight downward trend compared to prior years, which may make some people a bit wary about purchasing real estate until rates come down or prices stabilize.

However, not everyone can wait until the market it is ideal to buy a new home. Factors like divorce and work-related relocations may push people to make choices at times when the market seems highly unpredictable. One of the most frustrating experiences involves having an offer accepted and pre-approval for a mortgage, only to have the whole thing fall apart because of an appraisal gap.

If the appraiser decides that the home is worth less than the offer, that can lead to financing challenges. How can buyers protect themselves from an appraisal gap?

1. Be cautious when making an offer

One of the most important ways for a buyer to avoid an appraisal gap is to make an offer rooted directly in the current market and the perceived value of the property. Becoming too fixated on a specific property and therefore offering too much for it could mean overextending oneself and offering a price that an appraiser will not feel is reasonable for the property.

2. Include the right contingencies in an offer

Especially if a buyer intends to make an aggressive offer on a property, they will want to protect themselves and the earnest money that they commit from the possibility of an appraisal gap. A financing contingency or an appraisal contingency, possibly both, integrated into the offer on the property will protect someone from losing some of their capital if the appraisal comes in lower than they anticipated when making the initial offer.

Sometimes, buyers and sellers can renegotiate when there is an appraisal gap. Other times, buyers are able to cover the gap. In a portion of appraisal gap cases, affected transaction ends up falling apart. Recognizing and protecting against issues that can derail residential real estate closings by seeking professional guidance can benefit those who are trying to buy property in New York, especially if they are first-time homebuyers.