It's been a hot market over the last few years, and especially busy this spring. One of the ways buyers have been competing to have their offer chosen by a seller in this multi-offer market has been to include an appraisal gap provision.
The next best thing these days to an offer to purchase a home without a loan condition and appraisal condition (often referred to as a cash offer), is an offer with an Appraisal Gap provision.
Many buyers can't afford to pay for a home with cash, especially in the Boulder County area where prices are rising constantly. However, some buyers do have enough cash to cover an Appraisal Gap.
This essentially means that if the appraised value is less than the contract price, the buyer's are confirming that they will bring additional cash to closing to make up that difference between appraised value and contract price.
Sometimes buyers will make the appraisal gap provision attached to a 'cap'. This means that the buyers will cover a gap, but only up to a specific amount. While that's not an ideal representation of an ideal offer, it's better than no gap at all.
In a market with most homes for sale getting multiple offers in a short amount of time, we see many buyers offering contract prices much higher than the asking price, and waiving many conditions such as inspection, insurance, appraisal and loan conditions.
An appraisal gap can be the next best option if buyers don't have enough cash to not use a loan to purchase their next home.
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Zachary Epps
GRI®, ABR®, MCNE®, CLHMS®, SRES®, REALTOR®,
RE/MAX Hall of Fame, RE/MAX Platinum Club