As a loan originator or real estate agent, you understand the importance of appraisals in the home buying process. But what happens when the appraised value of a property is lower than the purchase price? This is called an appraisal gap, and it can be a significant challenge for home buyers and agents.
Appraisal gaps can occur when the appraised value of a property is lower than the purchase price. This means that the lender will not lend the full amount of the purchase price, and the home buyer will need to come up with the difference in cash. This can be a significant amount, and many home buyers may not have the extra funds to cover the gap. The seller may or may not be willing to renegotiate the price.
Appraisal gaps not only impact home buyers but can also impact real estate agents. When an appraisal gap occurs, it can cause delays in the closing process, and in some cases, the deal may fall through. This can be frustrating for both the agent and the home buyer, and it can also damage the agent’s reputation.
The best ways to avoid an appraisal gap are to work with an experienced real estate agent who can predict market value or obtain a pre-appraisal. Hire a local appraiser recommended by the lender or realtor. This will give home buyers an idea of the property’s value before making an offer and help ensure that the purchase price is in line with its appraised value. Another approach for a buyer could be to shop for less expensive housing that they qualified for to possibly have funds to bridge any gap.
Aladdin Appraisal offers a Desktop Pre-Appraisal service that can help home buyers and real estate agents avoid appraisal gaps. Desktop Pre-Appraisals can save time and money by providing an estimate of value before the full appraisal is completed. They can also identify any potential issues with the property that may impact its value and help home buyers make more competitive offers based on a more accurate estimate of the property’s value.
If an appraisal gap does occur, home buyers can request a Reconsideration of Value (ROV). This process allows for factual errors or inaccuracies in the appraisal to be corrected. However, it’s important to follow the guidelines set forth by FNMA when requesting an ROV, including presenting alternate comparables.
Here are the steps to follow when requesting an ROV:
- 1. Review the appraisal carefully and identify any factual errors or inaccuracies.
- 2. Collect any additional information, such as recent sales of similar homes in the area, that may support a higher value for the property.
- 3. Draft a letter explaining the factual errors and why the alternate comparable sales are superior indicators of value compared to those already in the appraisal.
- 4. Contact the appraiser and request an ROV.
It’s important to note that an appraised value below the contract price is not always an error. The appraisal may have served its purpose, which is to prevent the lender from over-financing and prevent a buyer from overpaying. Some frustrated buyers feel they have to be willing to pay the future price to obtain a home today.
In conclusion, navigating appraisal gaps can be a challenging process for home buyers and real estate agents. By working with experienced real estate agents who can predict market value, obtaining a pre-appraisal, or using Aladdin Appraisal’s Desktop Pre-Appraisal service, you can help ensure a smoother home buying process. If an appraisal gap does occur, following the steps for requesting an ROV and presenting alternate comparables can help correct any factual errors or inaccuracies. By understanding the process for requesting an ROV, loan originators can help their clients navigate this process with confidence.
Thank you for your time, and please feel free to reach out to Aladdin Appraisal if you have any questions or need assistance with appraisals.