What an exciting market for sellers! Housing supplies are short, and demands are high. Northwest Arkansas finds itself on several lists of top ten places to live and for those of us that live here, we know it is true. All the reasons it makes those lists make it a unique place to call home, driving the real estate market. People relocating from across the country are looking to establish roots here, but not many are moving out. We totally understand, we love NWA too! What happens though when there is a surplus of buyers and fewer homes for sale? A few things are certain, prices will increase, bidding wars will ensue, and offers will come in over asking price. If you have been actively looking for homes, take note that although submitting offers over asking price will increase your chances of the seller accepting your offer, if you are getting financing, it could create an appraisal issue.
An appraisal and its purpose.
First, let’s discuss the reason for an appraisal. This is an essential part of the home buying process that protects both you and your lender. The amount you can borrow is largely based on the home’s estimated fair market value. This is determined by comparative analysis to similar properties and other relevant data. Now let’s look at how this impacts your buying process.
What is an appraisal gap?
An appraisal gap is verbiage added to the offer and acceptance that addresses appraisal shortfalls or the difference between the amount you offer for a home and the value of the home established by an appraiser. In many scenarios, that difference is paid in cash by the buyer, unless otherwise stated in the offer, should that offer be accepted. For example, say you tour a property listed at $350,000. You envision yourself in that home, you fall in love with it, and you decide to write an offer. Your agent educates you on the market and suggests you make the offer as attractive as possible, at what the home would be worth to you, so you submit an offer. Because this home is perfect for you and has had a lot of showings, you offer to pay accept an appraisal of less than your offer price and agree to pay the difference in the appraisal value and the purchase price at closing. Your offer is so attractive to the seller, that they accept it. Yes, finally! After months of searching, being out-bid and overlooked, you have gone under contract. Your agent can ensure both parties are aware of all final costs associated with the sale and that contract verbiage reflects your wishes for such costs.
We can help!
Are you thinking about purchasing a home? This is just one scenario in which having a knowledgeable buyer’s agent is invaluable. Especially in this market, make sure you have a REALTOR ® on your team, not only to keep an eye on new listings, but also to help see you through tricky contract negotiations. Give a Lindsey & Associates agent a call today and let us have your back through the buying process!