The real estate market is exploding—right now it’s unlike anything I’ve seen in my 20-year career. With that in mind, today I wanted to discuss a tool we’re using to help homebuyers: the appraisal gap guarantee.

An appraisal gap guarantee is a tool that buyers can use to entice sellers to work with them during competing offer situations. We’re seeing more and more buyers utilizing this tool in today’s heated market. I recently put a home on the market that received 18 offers, all of which were over asking price. So how did we decide which offer to accept?

“Verify with your lender that you’ll be able to bring that extra money to the closing table.”

Smart buyers know there are three different price points to consider when it comes to the value of the home:

  • The asking price is what the seller has listed the home for
  • The appraised value is what the appraiser determines a home is worth
  • The offer price is what the buyer is willing to pay for a home

The asking price for the aforementioned listing was $400,000. The buyer decided they were willing to pay $450,000. The appraisal gap guarantee will guarantee the difference between the appraised value and the offer price. So in my example, if the buyer used an appraisal gap guarantee, they’d be saying that they’d offer $450,000, but if the appraisal comes in at $425,000, they’d be willing to pay the appraisal value plus $25,000.

Of course, there is a little bit of risk involved for the seller if the buyer can’t qualify for the amount they guaranteed. That’s why you need to verify with your lender before using the appraisal gap guarantee that you’ll be able to bring that extra money to the closing table.

If you have any questions about appraisal gap guarantees or buying a home in today’s market, don’t hesitate to reach out to me.