What is an Appraisal Gap and Will We See the Gap Grow in Michigan
So, what is an appraisal gap, and how do you handle those gaps between value and the price the buyer is willing to pay in Michigan. Will we see the home appraisal in MI gap grow? In today’s real estate market, low inventory and high demand are driving up home prices. We are now seeing the troubling signs home appraisal in MI gap is growing as well. As many as 54% of homes are getting offers over the listing price, nationally. Moreover, based on the latest Realtors Confidence Index from the National Association of Realtors (NAR); So what are some of the home buying appraisal rules?
Shawn Telford, Chief Appraiser at CoreLogic, elaborates:
“The frequency of buyers being willing to pay more than the market data supports is increasing.”
While this is great news for today’s sellers, it can be tricky to navigate if the price of your contract doesn’t match up with the home appraisal for the house. It’s called an appraisal gap, and it’s happening more in today’s market than the norm.
According to recent data from CoreLogic, 19% of homes had their appraised value come in below the contract price in April of this year. That’s more than double the percentage in each of the two previous Aprils.
The chart below uses the latest insights from NAR’s Realtors Confidence Index to showcase how often an issue with an appraisal slowed or stalled the momentum of a house sale in May of this year compared to May of last year.
If an appraisal comes in below the contract price, the buyer’s lender won’t loan them more than the house’s appraised value. That means there’s going to be a gap between the amount of loan the buyer can secure and the contract price on the house.
In this situation, both the buyer and seller have a vested interest in making sure the sale moves forward with little to no delay. The seller will want to make sure the deal closes, and the buyer won’t want to risk losing the home. That’s why it’s common for sellers to ask the buyer to make up the difference themselves in today’s competitive market. We keep up to date on all appraisal standards to help you navigate a solution.
So what does the graph represent?
The Delayed represents the loan process was on hold. It will give the buyer and seller time to review their options on how to handle the gap. Once the buyer and seller agreed on how to handle that gap, they did move forward in the loan process. Both buyer and seller are happy because they are moving to a new home.
The Terminated represents, the buyer and seller couldn’t agree on how to handle the gap, and the contract was terminated. The buyer(s) decided not to purchase the home. Sometimes in a multiple offer situation, the gap is determined upfront. Furthermore, the gap was much larger than what the buyer(s) had anticipated. Sometimes the seller(s) are not open to negotiations, and the buyer decides not to overpay for a home and terminates the contract. “Dead Deal”
Bottom Line ~ Will we see the appraisal gap grow in Michigan
Whether you’re Buying or Selling, I feel it’s important to have a plan upfront. I like to have a discussion before the offer is submitted or accepted. I will discuss with the agent a “what-if scenario” to see if they had a discussion with their client and get a feel for their position. It’s best to know where everyone stands. Let’s connect so you have an ally throughout the process to help you navigate the unexpected, including appraisal gaps.
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