Here’s how it works:

• Mitigating Risk: For example, in a scenario where let’s say a buyer includes their agent’s commission in the asking price, and the home subsequently doesn’t appraise at that value, the buyer may face a gap between the appraised value and the agreed-upon purchase price. This gap can create financial strain or even lead to the deal falling through. Appraisal Gap Protection steps in to mitigate this risk.
• Financial Protection: With Appraisal Gap Protection, buyers are safeguarded against potential financial losses resulting from a lower-than-expected appraisal. The protection typically covers the difference between the appraised value and the agreed-upon purchase price, up to a certain limit specified in the protection agreement.
• Peace of Mind: Knowing that they have Appraisal Gap Protection in place gives buyers peace of mind during the home buying process. They can proceed with confidence, knowing that they have a measure of financial security if the appraisal comes in lower than anticipated.
• Facilitating Transactions: By reducing the financial risk associated with appraisal gaps, this protection can help transactions proceed more smoothly. Buyers are less likely to encounter last-minute renegotiations or deal cancellations due to appraisal discrepancies, leading to a more efficient and satisfactory home-buying experience.

Here are some scenarios where Appraisal Gap Protection proves valuable:

• Competitive Markets: In hot real estate markets where bidding wars are common, buyers may feel pressured to offer higher prices to secure a property. In such cases, there’s a risk that the appraised value might not align with the inflated purchase price. Appraisal Gap Protection provides a safety net for buyers in case the appraisal falls short of the agreed-upon price.
• Tight Financing Contingencies: Buyers who are relying heavily on financing to purchase a home may face challenges if the property doesn’t appraise at the expected value. Lenders typically require that the property appraise for at least the purchase price to approve the loan. Appraisal Gap Protection helps mitigate the risk of financing falling through due to appraisal discrepancies.
• Seller’s Market Dynamics: In seller’s markets where inventory is low and demand is high, sellers may receive multiple offers above the listing price. Buyers may need to offer more than the appraised value to compete effectively. Appraisal Gap Protection offers buyers reassurance that they won’t be left financially vulnerable if the appraisal comes in lower than expected.
• Protecting Investments: For buyers making significant financial investments in a property, such as down payments and closing costs, a gap between the appraised value and the purchase price can have substantial financial implications. Appraisal Gap Protection helps protect these investments by covering the difference between the appraised value and the agreed-upon purchase price.

Please note, however, that Appraisal Gap Protection can only be used with conventional loans and the buyer will need at least a 5% to 8% down payment ready based on the particular contract price. Reach out to Gracie if this is something you think you may need and then call the agents at Prominus to help you find your next property!