What we’re seeing in today’s housing market is a result of low supply and high demand, making prices rise as a result of it. Home prices are appreciating at near-historic rates, and that’s creating some trials when it comes to home appraisals.
In recent months, we’ve observed appraisals coming in below the contract price on the house. Shawn Telford, Chief Appraiser for CoreLogic, explained, “Recently, we observed buyers paying prices above listing price and higher than the market data available to appraisers can support. This difference is known as ‘the appraisal gap . . . .”
What is the appraisal gap a result of?
Basically, when buyer demand is heightened like it is right now, purchasers are often willing to pay over asking to secure the home of their dreams. If you’ve ever fallen in love with a home you toured, you know what you’d do to help secure that home. Once you start to picture yourself and your furniture in the rooms, you want to do everything you can to land the property, including putting the best possible offer.
On the other hand, appraisers look at things a bit more objectively. Their job is to assess the inherent value of the home, so they’re going to focus on the details. An appraiser’s job end goal is to remain an unbiased third party, to truly tell the client what that home is worth in the current market, regardless of what decisions have been made on the price side of things.
In a highly competitive market like today’s, having a discrepancy between the two numbers isn’t unusual. Here’s a look at the increasing rate of appraisal gaps, according to data from CoreLogic (see graph below):
What does this mean?
Understanding appraisal gaps may impact your transaction if you’re buying or selling. If you do encounter an appraisal below your contract price, know that in today’s sellers’ market, the most common approach is for the seller to ask the buyer to make up the difference in price. If buyers really want the home, they have to be prepared to put a little extra on the table.
Above all else, you can rely on your real estate agent if you come up with an appraisal gap. Connect with one of our agents today to help you navigate an appraisal gap and get the best possible result.