The Appraisal Gap: When the Bank Disagrees With Your Buyer

Sometimes a buyer and seller agree on a price for a vehicle, then the buyer's bank says it is worth less and will lend only that lower amount.

The buyer may still want the vehicle. The bank may not agree with the price.

The same thing happens with homes in San Diego.

When a buyer uses a loan, the lender orders an appraisal to confirm the home is worth the contract price. If the appraisal comes in low, there is a gap. The buyer has to cover it in cash, the seller has to lower the price, or the deal can fall apart.

Here is how to protect yourself from the Appraisal Gap:

Price With the Appraiser in Mind. Appraisers lean on recent nearby sales. A price that is far above those sales may attract an offer, but it may not survive the appraisal.

Give the Appraiser Your Story. A clear list of upgrades, improvements, and comparable sales helps the appraiser understand the value. An appraiser who has the full picture makes a better-informed decision.

Vet the Buyer's Cushion. Before accepting an offer, find out whether the buyer has cash to cover a gap if one appears. Some buyers will even agree to cover a set amount upfront.

The market is fair, but it is not forgiving. The contract price only matters if the appraisal agrees with it.

Next week, I am going to share the "Multiple Offer Mistake" that has sellers picking the wrong buyer.