Appraisal Gap Explained - Win the Home!!!

hi i'm clinton porter with keller williams realty and team colorado vistas and i've been a denver area agent for almost 14 years and then prior to that i was a mortgage banker for about three years um wanted just to give you this a little bit of a video to explain what it means by appraisal gap so when you've got a situation you've got where you've got very low inventory but you've got lots and lots of home buyers that are out buying are looking to buy homes it creates a very large um bidding type of situation where people place their offers or place their bids if you will on that particular house now it's an offer that you're making but you've got to make yourself competitive in order to be able to to capture that home seller's attention a lot of times right now real estate agents like me are pricing things right or they're pricing it just a little bit below what is market price now market price is what things have been selling for in the community the surrounding community over the past six months for a home of a similar similar square footage similar location similar amenities okay so that's what we consider market price so when we price it a little bit lower right at market price we understand that that's about what is a safe appraised a broker price opinion of value for that particular home because we're looking at past data over the past six months so we come up with that price and we say okay this is this is about what an appraiser if they were to do an independent appraisal on the property this is about what that property value would be because i'm looking at the past six months of data on a home that's very similar to this particular home okay and that's how we get we get price an appraiser will come along and they'll just determine based on what offer we receive if that offer price is correct with the market now if we've done a good job about real estate agents and we priced it right because we're in such a feeding frenzy type of market where there's lots and lots of home buyers but there's very very low inventory we have a situation where people begin to bit up that price and they bid higher than either our price or market value okay so that means that that once that appraisal is actually done if you're if you're buying the home with a mortgage um and that and that mortgage company is requiring an appraisal once that appraisal is actually done that appraiser is going to look at it and say okay just like me as an agent they're going to look at the past six months of data they're going to look within a about a half mile radius they're going to look at the community and they're going to look for other homes that are similar in square footage or similar in amenities and then be able to determine about what the appraised value is for that particular home in our market today because you've got low inventory lots of home buyers lots of offers that tend to stack up and they increase that price and the price that home was going to sell what we tell you as an agent trying to as an agent selling a home is we tell you okay if you're going to make an offer and it's going to be well above our asking price what we consider well above our market price let's say by 10 or 15 or 20 or sometimes 50 or 100 000 well above what the rest of the market has sold for in that particular community we have a difference of market value and what your offer price is at okay it's a pretty big difference right and when an appraisal takes place and that appraiser comes out and they determine what the value is they may be a little bit more than our market value not much maybe two maybe three or five thousand dollars they could even be a little bit less than what where our list price was we're not sure we don't have a barometer on whether or not that agent is going to see things the way that we saw them whenever we listed it but what we do know is that from there now appraised value and i'm talking about it cost anywhere from about 650 up to i've heard up to almost 2 000 for an appraisal these days when that appraisal comes in and the appraiser says okay you know what clinton your home you priced it exactly right it's right there and you price it at market value this is my appraisal and it's here meanwhile the offer that we accepted is way up here we have this appraisal gap because all of a sudden the amount of money you said you buy the home that you went under contract with with that home seller is up here the appraisal came in here we have a gap we have a gap and sometimes this is literally tens of thousands of dollars in a lot of cases on homes around like five hundred thousand dollars this could be a gap of somewhere about anywhere from five to maybe twenty or twenty five thousand dollars okay but that's a lot of money whenever you first submitted your offer to the home seller you said to the home seller i want to buy your home and i know it's priced at 400 000 but i'm willing to go ahead and offer you 425 or 430 000 let's call it 430. well if an appraiser comes in your appraiser comes in and says you know what that home you may have offered 430 but that home that was priced at 400 000 it's only worth 420 it's only worth 420 000 so we have a 10 000 gap okay so that ten thousand dollar gap what typically takes place is that if you don't have something in your offer that says how we're going to to negotiate or how we're going to handle that gap if you don't have that in your offer well then it's got to go back to negotiation and it's you the buyer renegotiating with the home sellers to say hey you need to come down in price because i know i said 430 but it's only worth 420 and you need to come down ten thousand dollars well the seller says well wait a second you offer 430. you need to come up to 430 you need to bring in the extra cash it becomes this whole negotiating nightmare so the reason or so the so the way that we handle this nightmare hopefully is to do it up front whenever you place your offer put your offer in at the highest so the most amount that you feel is comfortable and that that wins you that offer okay you want to win the home you want to beat out the other seven or eight different offers great make it so that you've got an appraisal gap coverage in there to say if the appraised value is way down here and my our offer price is way up here let's say at 430 000. i'm willing to come up with the extra 10 000 to a home seller that's a big deal that's a really big deal it means that you're serious about buying their home you've got a good down payment you're willing to pay for closing costs because here in colorado you're having to pay for closing costs and you're willing to pay for your own inspection your own appraisal and if there's a gap between what your offer price is and what your appraisal comes in at you're willing to take care of that that coverage that gap so on my homes in fact uh one i'm working on right now we have a total of eight different offers okay and those eight different offers some of them have appraisal gaps appraisal gap coverage where they've literally told my told me and my home sellers look i know that we're offering you 20 000 more than where you listed it at i know that it might only appraise at your your your market value your your your listing price we understand that it might only um appraise there we're willing to give you twenty thousand dollars more and of that twenty thousand if our appraisal comes in and it's just right at what you had it marketed at we're willing to pay the extra money that's one of the ways that home buyers are able to win homes these days and i'm going to have lots of dissenters i'm going to have lots of people who say that when you do that you're causing the market to do um i'm going to tell you right now that it's a it's a it's a law of economic so it's the law of supply and demand when you have high demand and you have low supply it always increases price that is a law of economics so in this case we have situations where not a lot of inventory a whole lot of home buyers and so a whole lot of people trying to get the same little piece of the pie so in this case they offer more money but i tell my home buyers that if you do and you offer more money then you better back it up with some type of an appraisal gap because even though you're offering a lot more money an appraiser may not see things the way that you see them or the way that i see them about what a wonderful home it is they're going to look at the past six months of data they're going to look inside the community there may take a couple of comparables outside the community but they're going to look for as best as they can apples apples to apples of what that home represents um uh in uh as far as the value is concerned and to look at what past sales are like what um a little bit about what the future is is going to be like with all the demand but they're giving their as best as bulletproof presentation of what that value is and if that value is here and your offer price is here appraisal gap hope that makes sense give me a call if you need any help i'm clinton porter keller williams realty team colorado vistas 720-876-8544

Channel: Clinton Porter

Views: 3,265

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Id: oXN1m-Wpiec

Length: 9min 55sec (595 seconds)

Published: Mon Feb 08 2021