How can real estate agents help buyers avoid an appraisal gap?

On Behalf of | Jun 24, 2023 | Real Estate Closings

Real estate agents representing buyers have to do a lot of legwork and research. They also need to help guide buyers through the process of making an offer on property, which may result in failure.

Buyers who are eager about a particular property may make a generous offer in the hopes of prevailing over any competing offers. However, they may end up with an appraisal gap that leaves them unable to buy the property. How can real estate agents help buyers avoid an appraisal gap scenario where they must walk away from an offer and potentially lose their earnest money?

They help buyers understand the market

Lenders require an appraisal in part to ensure they don’t overextend themselves and take a loss if they must later foreclose on the property. Looking at not just what houses have sold for in the last year but also at reports about the market in recent weeks can help buyer’s agents understand if the appraisal might come in lower than they expect.

Encouraging buyers to make an offer that reflects current market values is of the utmost importance if they do not have adequate capital set aside to cover any gap that might arise after the appraisal.

Agents can potentially also help buyers come up with alternate solutions for covering an appraisal gap ahead of time if they feel like they must make an assertive offer but worry that the market has softened. Arranging for a personal loan from family or identifying resources that the buyers could liquidate, if necessary, could help them address an appraisal gap and move forward with the transaction.

They help buyers protect their capital

No matter how careful an agent may try to be when tracking the market and putting together a buyer’s offer, things can still change between when they view the property and when the appraisal occurs. Agents concerned about a possible appraisal gap will often recommend that their clients include both financing and appraisal contingencies in their offers. That way, they can protect their earnest money if there is an issue with the appraisal.

Agents may also need to consult with a real estate lawyer in scenarios wherein they worry about protecting a buyer or putting together documents that will effectively protect them. Reaching out for professional assistance can allow a real estate agent to more effectively represent buyers making the best of an uncertain and unpredictable market.