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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 your buyer client offers to make up the difference in cash up to a certain amount. So your client can say they’ll pay the difference in the appraisal gap, for this example $200,000 if the property appraises at $1,800,000 when the contract price is $2,000,000

The key is to bring the topic up early in negotiations with your client so that there are no surprises..”

You can also create an appraisal contingency when your client (the seller) is concerned about the appraisal coming in low. So if this $2 million property appraised higher than the asking price but below the contract price, the buyer agrees to move forward to buy it up to a certain amount. Either of these options is a way you can differentiate your services from other agents that are not creative. 

If you have a conversation about the appraisal gap, you want to protect your seller or buyer clients. The key is to bring the topic up early in a transaction so that you have a higher probability for a smooth transaction with less turbulence. You may want to roleplay this conversation to help you nail down this technique before talking to you sellers.

If you have any questions about today’s video, or if you’re considering a change in your career to another firm or team that specializes in luxury real estate, please call or email me. Don’t forget to jump on our “Luxury Fridays” on YouTube each Friday. Check it out by going to www.JoinLuxeGroup.com and clicking on the “Luxury Friday’s On YouTube” button.

Michael LaFido
Founder & CEO | Luxury Listing Specialist Designation (LUXE)
Michael@MarketingLuxuryGroup.com
LuxurySpecialistGear.com

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