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How Do You Handle an Appraisal Gap?

Here’s what you need to know about appraisal gaps in our current market.

If you’re working in an appreciating market like our current one, you’ve probably run into problems involving an appraisal gap. How do you handle this issue so that your clients can continue with their transactions? Let’s talk about it.

Let’s take a look at an example. Suppose you and a client look at a home listed at $2 million, but it only appraises for $1.8 million. One way you can handle this is by adding a contingency to the contract where you offer to make up the difference in cash up to a certain amount. So your client can say they’ll pay an appraisal gap in cash up to $200,000 if the property appraises low. 

“The key is to bring the topic up early in a transaction so that there are no surprises.”

You can also create an appraisal contingency the other way. So if this $2 million property appraised higher than its list price, you’ll agree to buy it up to a certain amount. Either of these options is a way you can differentiate yourself from the pack. 

If you have a conversation about the appraisal gap, you can protect your seller or buyer. The key is to bring the topic up early in a transaction so that there are no surprises. You may want to roleplay this conversation to help you nail down this technique. 

If you have any questions about today’s video, or if you’re considering a career in luxury real estate, please call or email me. I am always available.

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