Congratulations! You have gone under contract and successfully negotiated any necessary repairs with the buyer. You have cleared one of the biggest hurdles that typically will cause a contract to be broken.

If your buyer is getting a mortgage, most likely the lender will require an appraisal. This is where the lender sends out an appraiser to evaluate the property and tell the lender their opinion of the value of the house. 

If the appraised value is less than the purchase price of the home, there is what’s called an “appraisal gap”. The lender is willing to extend up to the appraisal amount but there is a “gap” or difference between that amount and the purchase price. This leaves a few options.

1) Buyer and seller agree to reduce the purchase price to the appraisal price.

2) Buyer agrees to pay the “gap” or difference between the appraisal and purchase price.

3) Buyer and seller agree to pay some portion of the “gap”. These portions do not have to be equal for both parties.

An additional alternative is that the buyer or seller can dispute the appraised value with the lender. We will tackle that topic in a separate blog.

Do you have an appraisal gap question? Feel free to leave a comment, contact me at 205-600-8682 or via email.