Appraisal gap money refers to the additional funds a homebuyer may need to cover the difference between a property's appraised value and the agreed-upon purchase price.
How It Works:
If a home is under contract for $400,000 but the appraisal comes in at $380,000, there is a $20,000 appraisal gap.
Since lenders only finance up to the appraised value, the buyer must cover the $20,000 difference out of pocket or renegotiate with the seller.
As we begin to crawl out of the depth of winter (wishful thinking), the market is slowly picking up. And, so are the strength of offers which include waived contingencies, larger earnest money deposits and appraisal gap money.
Again, not to overstate this. This is just the beginning of market competition with a minority of offers fetching this type of aggressive approach.
However, appraisal gap money is most common in multiple offer situations and/or for properties that are updated, move-in ready new to market.
When identifying your financial strategy it's important to take into account your financial goals before you step into a home that you could potentially fall in love with that's outside your comfort level.
A sign of a great Realtor is someone that doesn't show you homes outside of your financial strategy!