It can be tempting to take the highest offer and move on when you’re selling your house in Sacramento and bids start flooding in. Let’s start with what Sacramento house sellers need to know about the appraisal gap to understand how things might get tricky if a bidding war gets out of hand in a seller’s market:
Determining Your Home’s Appraised Value
It’s common for someone unfamiliar with the operations and terminology of the real estate world to quickly get confused, or make inaccurate assumptions.
For example, both buyers and sellers frequently feel that an appraisal is the be-all and end-all method of determining a property’s value. While an appraisal is a service provided by a skilled professional to determine the value of a property in Sacramento, it does not imply that the value determined is the precise amount someone should pay for your Sacramento home.
This is where we bring in another important term: market value. The appraised value is what is figured to be the general value of the property but the market value is what someone is actually willing to pay for it.
Understanding the distinction is critical since we live in a time when a Sacramento home’s market value is frequently higher than its appraised value. This indicates that in today’s real estate market, purchasers will usually pay more for a home than the appraised value.
The Appraisal Gap
Now that we know the difference between the appraised and market values of a house in Sacramento, what is this mystical appraisal gap, and why does it matter?
The appraisal gap occurs when a buyer’s offer comes in higher than the appraised value of the property. Or – using our previously-defined terms – the market value (the buyer’s bid) is higher than the appraised value.
This is important when a buyer is attempting to obtain financing from a mortgage lender. Because their mortgage lender likes to approve loans that are safe bets, this appraisal discrepancy can be quite harmful to you as the seller. The last thing a lender wants to do is give out a hefty loan on a house that isn’t worth as much as the loan.
The reason for this is, in the event the buyer defaults on their mortgage, the lender is then left with a Sacramento property valued lower than the loan, and they take on that difference as a loss.
The most common way for a buyer to overcome the appraisal gap is to buy their way out of the predicament by paying for the difference, but not all buyers will be able to swing that additional funding so readily.
You may be able to skip the appraisal entirely, depending on where you live and the restrictions of the buyer’s lender. However, this is exceedingly improbable, as any reputable lender will require an evaluation to protect their future investment.
Renegotiating with the buyer is one of the most active ways you, as the seller, can help keep the transaction alive. This may appear to be a waste of money, but if your home’s agreed-upon sale price is reduced to the point where the buyer can pay off the appraisal gap, you aren’t losing everything.
Help Navigating the Appraisal Gap in Sacramento
Understanding the ins and outs of buying and selling a home can be confusing, especially if you’ve never been through the process before. If you’re looking to buy or sell in Sacramento and want help navigating the appraisal gap, contact us today at (916) 507-2502!