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What is an Appraisal Gap on a Crested Butte Home Sale?

An appraisal gap occurs when a buyer's offer is higher than the actual appraised value of the Crested Butte home. The appraised value is usually the limit the bank will loan for the home. It is an issue that is currently being experienced in many areas around the country as well as the hot and highly competitive Crested Butte Real Estate Market. The laws of supply and demand for most property types and locations are in play. When there are more prospective buyers than inventory that is available for sale, and the home is attractive – then there may be multiple offers on a property. To get an offer accepted, buyers may have to go over the asking price. Here is an example: Say a home is listed for $1,400,000 and it goes under contract for a sale price $1,500,000. However, the appraisal comes in at only $1,450,000. The mortgage lender won’t cover the gap. In this scenario, the buyer would have to either fork over an additional $50,000 in cash to make the deal happen, or convince the seller to accept a new purchase price of $1,450,000 (unlikely) — or walk away from the deal. Sellers want to be sure that the buyer will come up with some money to cover the difference between the appraisal and the offer purchase price. The appraisal gap is “insurance” for the seller that the buyer pays an additional amount over the home’s appraised value if the appraisal comes in less than the agreed-upon purchase price. An appraisal is based on recent comparable sales, or “comps”, but in the current Crested Butte Real Estate Market, these comps may not reflect the current rising market prices. Seller’s markets with low inventory and high competition are particularly susceptible to listing prices that end up higher than the appraised value. If a prospective buyer cannot come up with these additional funds to make up the “appraisal gap”, their offer will not be as attractive to a seller in a competitive situation. In order to compete, buyers will have to promise in their offer to purchase that they will cover part or all of the appraisal gap, in cash, and usually before they even know how much that gap will be. I have represented buyers where offers up to $100,000 over the asking price did not win. Cash is King Many affluent buyers may be able to pay cash – but want to take advantage of low interest rates and obtain financing. Cash is King - and offers that are Cash eliminate time, complexity, and contingencies and I recommend that if a buyer is financially capable – then submit a Cash offer and refinance after the transaction closes. Another option – you could use your investment portfolio or other assets and leverage a line of credit. Since this is not a traditional loan and you are collateralizing your investment portfolio, not the home – you are submitting a Cash offer. BUYERS - What Happens When the Appraisal is Less Than Your Offer Purchase Price? 1. Buyer Comes Up with More Cash - Offers are legally binding, meaning the buyer must pay the seller the amount of money they originally offered, even if it’s less than what the appraised value came in at. 2. Buyer Asks Seller to Close the Gap - If there was no “appraisal gap clause” in the contract - Buyer can submit and amendment to the Contract and ask Seller to reduce the Purchase Price. 3. Buyer can Terminate the Contract if there was no “appraisal gap clause” in the contract. SELLERS - What Is Your Gameplan? As a Seller you want to get the highest price for your home, have a contract with very few contingencies that allow the buyer to Object or Terminate, and close in the least amount of time. If you receive multiple offers you have more control over setting the ground rules for the offers. You could for example request that all offers that have a loan, also include an appraisal gap clause. If you receive a solo offer you can counter that offer with an appraisal gap clause.

What is an Appraisal Gap on a Crested Butte Home Sale?

I have had a number of clients ask me “What is an Appraisal Gap on a Crested Butte Home Sale?”  An “Appraisal Gap” occurs when a buyer’s offer is higher than the actual appraised value of the Crested Butte home. The appraised value is usually the limit the bank will loan for the home.

It is an issue that is currently being experienced in many areas around the country, as well as the hot and highly competitive Crested Butte Real Estate Market.

The laws of supply and demand for most property types and locations are in play. When there are more prospective buyers than inventory that is available for sale, and the home is attractive – then there may be multiple offers on a property. To get an offer accepted, buyers may have to go over the asking price.

Here is an Appraisal Gap Example:

Say a home is listed for $1,400,000 and it goes under contract for a sale price $1,500,000. However, the appraisal comes in at only $1,400,000. The mortgage lender won’t cover the gap. In this scenario, the buyer would have to either fork over an additional $100,000 in cash to make the deal happen, or convince the seller to accept a new purchase price of $1,400,000 (unlikely) — or walk away from the deal.

An appraisal gap occurs when a buyer's offer is higher than the actual appraised value of the Crested Butte home. The appraised value is usually the limit the bank will loan for the home. It is an issue that is currently being experienced in many areas around the country as well as the hot and highly competitive Crested Butte Real Estate Market. The laws of supply and demand for most property types and locations are in play. When there are more prospective buyers than inventory that is available for sale, and the home is attractive – then there may be multiple offers on a property. To get an offer accepted, buyers may have to go over the asking price. Here is an example: Say a home is listed for $1,400,000 and it goes under contract for a sale price $1,500,000. However, the appraisal comes in at only $1,450,000. The mortgage lender won’t cover the gap. In this scenario, the buyer would have to either fork over an additional $50,000 in cash to make the deal happen, or convince the seller to accept a new purchase price of $1,450,000 (unlikely) — or walk away from the deal. Sellers want to be sure that the buyer will come up with some money to cover the difference between the appraisal and the offer purchase price. The appraisal gap is “insurance” for the seller that the buyer pays an additional amount over the home’s appraised value if the appraisal comes in less than the agreed-upon purchase price. An appraisal is based on recent comparable sales, or “comps”, but in the current Crested Butte Real Estate Market, these comps may not reflect the current rising market prices. Seller’s markets with low inventory and high competition are particularly susceptible to listing prices that end up higher than the appraised value. If a prospective buyer cannot come up with these additional funds to make up the “appraisal gap”, their offer will not be as attractive to a seller in a competitive situation. In order to compete, buyers will have to promise in their offer to purchase that they will cover part or all of the appraisal gap, in cash, and usually before they even know how much that gap will be. I have represented buyers where offers up to $100,000 over the asking price did not win. Cash is King Many affluent buyers may be able to pay cash – but want to take advantage of low interest rates and obtain financing. Cash is King - and offers that are Cash eliminate time, complexity, and contingencies and I recommend that if a buyer is financially capable – then submit a Cash offer and refinance after the transaction closes. Another option – you could use your investment portfolio or other assets and leverage a line of credit. Since this is not a traditional loan and you are collateralizing your investment portfolio, not the home – you are submitting a Cash offer. BUYERS - What Happens When the Appraisal is Less Than Your Offer Purchase Price? 1. Buyer Comes Up with More Cash - Offers are legally binding, meaning the buyer must pay the seller the amount of money they originally offered, even if it’s less than what the appraised value came in at. 2. Buyer Asks Seller to Close the Gap - If there was no “appraisal gap clause” in the contract - Buyer can submit and amendment to the Contract and ask Seller to reduce the Purchase Price. 3. Buyer can Terminate the Contract if there was no “appraisal gap clause” in the contract. SELLERS - What Is Your Gameplan? As a Seller you want to get the highest price for your home, have a contract with very few contingencies that allow the buyer to Object or Terminate, and close in the least amount of time. If you receive multiple offers you have more control over setting the ground rules for the offers. You could for example request that all offers that have a loan, also include an appraisal gap clause. If you receive a solo offer you can counter that offer with an appraisal gap clause.

Sellers want to be sure that the buyer will come up with some money to cover the difference between the appraisal and the offer purchase price. The appraisal gap is “insurance” for the seller that the buyer pays an additional amount over the home’s appraised value if the appraisal comes in less than the agreed-upon purchase price.

An appraisal is based on recent comparable sales, or “comps”, but in the current Crested Butte Real Estate Market, these comps may not reflect the current rising market prices. A Seller’s Market with low inventory and high competition are particularly susceptible to listing prices that end up higher than the appraised value.

If a prospective buyer cannot come up with these additional funds to make up the “appraisal gap”, their offer will not be as attractive to a seller in a competitive situation. In order to compete, buyers will have to promise in their offer to purchase that they will cover part or all of the appraisal gap, in cash, and usually before they even know how much that gap will be. I have represented buyers where offers up to $100,000 over the asking price did not win.

Many affluent buyers may be able to pay cash – but want to take advantage of low interest rates and obtain financing.

Cash is King

Many affluent buyers may be able to pay cash – but want to take advantage of low interest rates and obtain financing. Cash is King – and offers that are Cash eliminate time, complexity, and contingencies and I recommend that if a buyer is financially capable – then submit a Cash offer and refinance after the transaction closes.

Another option – you could use your investment portfolio or other assets and leverage a line of credit. Since this is not a traditional loan and you are collateralizing your investment portfolio, not the home – you are submitting a Cash offer.

An appraisal gap occurs when a buyer's offer is higher than the actual appraised value of the Crested Butte home. The appraised value is usually the limit the bank will loan for the home. It is an issue that is currently being experienced in many areas around the country as well as the hot and highly competitive Crested Butte Real Estate Market. The laws of supply and demand for most property types and locations are in play. When there are more prospective buyers than inventory that is available for sale, and the home is attractive – then there may be multiple offers on a property. To get an offer accepted, buyers may have to go over the asking price. Here is an example: Say a home is listed for $1,400,000 and it goes under contract for a sale price $1,500,000. However, the appraisal comes in at only $1,450,000. The mortgage lender won’t cover the gap. In this scenario, the buyer would have to either fork over an additional $50,000 in cash to make the deal happen, or convince the seller to accept a new purchase price of $1,450,000 (unlikely) — or walk away from the deal. Sellers want to be sure that the buyer will come up with some money to cover the difference between the appraisal and the offer purchase price. The appraisal gap is “insurance” for the seller that the buyer pays an additional amount over the home’s appraised value if the appraisal comes in less than the agreed-upon purchase price. An appraisal is based on recent comparable sales, or “comps”, but in the current Crested Butte Real Estate Market, these comps may not reflect the current rising market prices. Seller’s markets with low inventory and high competition are particularly susceptible to listing prices that end up higher than the appraised value. If a prospective buyer cannot come up with these additional funds to make up the “appraisal gap”, their offer will not be as attractive to a seller in a competitive situation. In order to compete, buyers will have to promise in their offer to purchase that they will cover part or all of the appraisal gap, in cash, and usually before they even know how much that gap will be. I have represented buyers where offers up to $100,000 over the asking price did not win. Cash is King Many affluent buyers may be able to pay cash – but want to take advantage of low interest rates and obtain financing. Cash is King - and offers that are Cash eliminate time, complexity, and contingencies and I recommend that if a buyer is financially capable – then submit a Cash offer and refinance after the transaction closes. Another option – you could use your investment portfolio or other assets and leverage a line of credit. Since this is not a traditional loan and you are collateralizing your investment portfolio, not the home – you are submitting a Cash offer. BUYERS - What Happens When the Appraisal is Less Than Your Offer Purchase Price? 1. Buyer Comes Up with More Cash - Offers are legally binding, meaning the buyer must pay the seller the amount of money they originally offered, even if it’s less than what the appraised value came in at. 2. Buyer Asks Seller to Close the Gap - If there was no “appraisal gap clause” in the contract - Buyer can submit and amendment to the Contract and ask Seller to reduce the Purchase Price. 3. Buyer can Terminate the Contract if there was no “appraisal gap clause” in the contract. SELLERS - What Is Your Gameplan? As a Seller you want to get the highest price for your home, have a contract with very few contingencies that allow the buyer to Object or Terminate, and close in the least amount of time. If you receive multiple offers you have more control over setting the ground rules for the offers. You could for example request that all offers that have a loan, also include an appraisal gap clause. If you receive a solo offer you can counter that offer with an appraisal gap clause.BUYERS – What Happens When the Appraisal is Less Than Your Offer Purchase Price?

  1. Buyer Comes Up with More Cash – Offers are legally binding, meaning the buyer must pay the seller the amount of money they originally offered, even if it’s less than what the appraised value came in at.
  2. Buyer Asks Seller to “Close the Gap” – If there was no “appraisal gap clause” in the contract – Buyer can submit and amendment to the Contract and ask Seller to reduce the Purchase Price. Seller can agree, negotiate or reject.
  3. Buyer can Terminate the Contract if there was no “appraisal gap clause” in the contract.

SELLERS – What Is Your Gameplan?

As a Seller you want to sleep well at night, and want as much assurance as possible that the Buyer who you go under contract with will perform and get to the closing table.  As a Seller you want:

  1. To get the highest price for your home,
  2. Have a contract with very few contingencies that allow the buyer to Object or Terminate.
  3. Close in the least amount of time.

If you as a Seller receive multiple offers you have more control over setting the ground rules for the offers. You could for example request that all offers that have a loan, also include an appraisal gap clause. If you receive a solo offer you can counter that offer with specific terms, including an appraisal gap clause.

Final Appraisal Gap Thoughts:

The standard Colorado Contract to Buy & Sell gives the buyer multiple options to terminate if “in their sole discretion” they are not satisfied with: Title, HOA Docs, Inspection, Appraisal, Loan, Survey, Due Diligence Docs…etc. These contingencies allow a buyer to Object and potentially re-negotiate terms of the contract – very common with Inspection. The seller has the option to agree, negotiate – or push back and disagree which could cause the buyer to terminate…

Whether a buyer or seller you should be aware that in a rising market there are some unique situations. Crafting a Contract to Buy & Sell that is a Win-Win situation for both parties is key to a smooth transaction.

How can I help you with Your Crested Butte Co Real Estate Needs?

This article What is an Appraisal Gap on a Crested Butte Home Sale? and the level of detail is representative of what you can expect from me as your Real Estate Agent.

If you are considering Selling – and you wonder “What is my home worth?”  Let me prepare a Property Valuation Report for you.

If you are considering Buying – I have been in your shoes. My wife and I were second homeowners for 10 years prior to moving our family to Crested Butte full time.

I am consistently among the Top Real estate agents in Crested Butte and among the top 1% of all Coldwell Banker Agents in the world, and I strive to exceed client expectations.

Especially now in these crazy post covid times you need a trusted advisor to help you sort out your next steps. Call or Text me: (970) 209-5405

I would appreciate the opportunity to earn your business (or that of a friend you think I could help).

Visit www.chriskopf.com. Phone: (970) 209-5405, or Chris.Kopf@CBMP.com

For questions regarding the Crested Butte Real Estate Market in general contact:

Chris Kopf
Global Luxury Property Specialist
Coldwell Banker Mountain Properties
Chris.Kopf@CBMP.com
(970) 209-5405

Top Crested Butte Real Estate Agent

 

 

 

Contact Chris

Call or Text: (970) 209-5405

Chris.Kopf@CBMP.com

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