Can You Sell a House for More than the Appraised Value?

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You know your home better than anyone. You know its faults and its fabulous features — and those property perks that may be hard to quantify. So when it’s time to sell your home, you might be asking: Can you sell a house for more than the appraised value?

In this post, we’ll share helpful insights about home appraisals, appraisal gaps, and how these figures play into your selling and pricing plans.

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What is a home appraisal, and how does it work?

A home appraisal is an unbiased estimate of a property’s value conducted by a certified appraiser. This process involves a thorough inspection of the property, including its size, condition, location, and any upgrades or unique features.

Appraisers also compare the home to recent sales of similar properties in the area. The resulting appraisal report provides lenders, buyers, and sellers with a professional assessment of the home’s market value, ensuring that the price reflects its true worth.

This evaluation plays a key role in most real estate transactions, particularly for homebuyers seeking mortgage approval, as lenders use the appraised value to determine the loan amount they’re willing to offer.

What is an appraisal gap?

An appraisal gap occurs when there’s a difference between the appraised value of a home and the agreed-upon sale price in a real estate transaction. Specifically, it happens if the home’s appraised value is less than the sale price.

For example, if you decide to list your home for $550,000, but the appraised value comes in as $530,000. The appraisal gap would be $20,000.

This gap can pose a challenge for transactions, as lenders typically offer mortgages based on the appraised value, not the sale price. Buyers and sellers must then navigate how to bridge this gap, whether through renegotiating the sale price, the buyer making up the difference in cash, or other creative solutions to keep the deal moving forward. We’ll review appraisal gap strategies for sellers and buyers in more detail later in our post.

Why might the appraised value differ from the sale price?

There are several reasons why a home’s appraised value might not align with its sale price. Here are some key reasons for discrepancies between appraised values and sale prices:

  • Unique features: Homes with unique or custom features can be challenging to appraise due to a lack of comparable properties. These unique attributes might increase a home’s appeal to certain buyers, pushing the sale price above what might be considered its “standard” appraised value.
  • Market conditions: Rapid shifts in the real estate market can affect home values. For example, in a seller’s market, high demand and low inventory can drive sale prices above appraised values, as buyers are willing to pay a premium to secure a property. This was common during the pandemic-era housing market.
  • Tight inventory: A low supply of available homes in a desired area can lead to competitive bidding wars, escalating the sale price beyond the appraised value. This is particularly common in hot real estate markets or desirable neighborhoods.
  • Investor appeal: Properties with high rental income potential or those in areas poised for growth may attract investors willing to pay more than the appraised value, betting on future appreciation or rental income.
  • Subjective emotional factors: Sometimes, a buyer’s personal attachment or desire for a specific property can lead them to offer a price that exceeds the appraised value. These emotional investments can make the home worth more to the buyer than the market or appraised value suggests.

Appraised value vs. market value

While often used interchangeably, appraised value and market value are distinct terms in the real estate world.

  • Appraised value is a professional appraiser’s unbiased opinion of a property’s worth at a given time based on a comprehensive evaluation and comparison to similar properties. It’s a crucial figure for lenders in determining loan amounts.
  • Market value is determined by what a willing buyer will pay for a property, influenced by current market conditions, demand, and other factors. Market value can fluctuate more frequently than appraised value, reflecting the real-time state of the real estate market.

How do buyers and sellers deal with appraisal gaps?

Navigating appraisal gaps can be a critical aspect of the home-buying and selling process, especially in a competitive market or when selling a coveted property.

When the appraised value of a home doesn’t meet the agreed-upon sale price, both parties must find common ground to bridge this gap. Here’s how buyers and sellers can approach these situations:

If you’re the seller:

  • Lower the sale price: One straightforward solution is to reduce the sale price to match the appraised value, ensuring the buyer can secure financing.
  • Negotiate a split: Consider meeting the buyer halfway by agreeing to lower the price partially while the buyer covers the remainder out of pocket.
  • Offer to pay for appraisal gap coverage: Some sellers offer to cover the difference should the home not appraise for the sale price, making the deal more attractive to the buyer.
  • Request a second appraisal: If you believe the appraisal was inaccurately low, you can ask the buyer to request a second appraisal from their lender, hoping for a higher valuation.
  • Find a new buyer: If you’re in a hot market, you might opt to put the property back on the market, hoping for a buyer who can meet your price or pay in cash, bypassing the appraisal issue.

If you’re the buyer:

  • Cover the gap with cash: If you’re committed to the purchase, you can offer to pay the difference between the sale price and the appraised value in cash.
  • Negotiate a lower sale price: Approach the seller to see if they’re willing to lower the price to the appraised value to ensure the sale proceeds.
  • Split the difference: Propose a compromise where both you and the seller contribute to bridge the appraisal gap, making it feasible for both parties.
  • Walk away: If the gap is too significant and no agreement can be reached, you may exercise any appraisal contingency in the contract and opt out of the purchase.
  • Explore appraisal gap coverage: Some loan programs offer appraisal gap coverage, which might help in covering the difference. Discuss this option with your lender.

What is appraisal gap coverage?

Appraisal gap coverage is a financial arrangement or clause in a real estate transaction that addresses the difference (or gap) between the appraised value of a property and the higher purchase price agreed upon by the buyer and seller. This coverage is particularly relevant in competitive markets where buyers might offer more than a home’s appraised value to outbid competitors.

Here’s how it works: If a home sells for more than its appraised value, appraisal gap coverage commits the buyer to cover the difference, ensuring the seller receives the agreed-upon price. This can be a deciding factor for sellers in accepting an offer, as it provides them with security that the buyer is prepared to proceed even if the property does not appraise at the offer price.

Appraisal gap coverage is typically outlined in the purchase agreement, where the buyer agrees to pay a certain amount above the appraised value, up to a specified limit. This arrangement can make an offer more attractive to sellers in a bidding war, demonstrating the buyer’s commitment and financial ability to close the deal, regardless of the appraisal outcome.

What is an appraisal contingency clause?

An appraisal contingency clause is a provision in a real estate contract that allows the buyer to back out of a purchase agreement without penalty if the home’s appraised value is less than the agreed-upon sale price. This clause is designed to protect the buyer, ensuring they are not obligated to overpay for a property based on its market value assessment by a professional appraiser.

Here’s how it works: When an appraisal comes in lower than the sale price, the contingency clause typically gives the buyer a specified amount of time to decide whether to proceed with the purchase at the lower appraised value, renegotiate the sale price with the seller, or cancel the contract and recover their earnest money deposit.

Including an appraisal contingency in a real estate transaction provides a safety net for buyers, particularly in markets where bidding wars can drive up prices beyond what lenders are willing to finance. It ensures that buyers have the option to withdraw from a potentially overpriced investment without facing financial penalties.

FAQs about selling a house for more than appraised value

Selling a house for more than its appraised value raises many questions for both sellers and buyers. Here are some frequently asked questions that can help navigate this complex scenario:

Can I sell my house for more than the appraised value?

Yes, it’s possible to sell your house for more than its appraised value, especially in a seller’s market where demand exceeds supply. However, the buyer’s ability to secure financing at a higher price can be a hurdle unless they’re willing to pay the difference in cash or have secured appraisal gap coverage.

What happens if my house doesn’t appraise for the selling price?

As noted above, if the house doesn’t appraise for the selling price, several options are available. The seller can lower the price to the appraised value, the buyer can cover the difference out of pocket, both parties can negotiate to meet in the middle, or the sale can be canceled, particularly if there’s an appraisal contingency clause in the contract.

Should I have my house appraised before selling?

Having your house appraised before selling can be a strategic move to set a competitive and realistic asking price. This can streamline the selling process by attracting serious buyers and potentially reducing the likelihood of appraisal issues during the transaction. A pre-listing appraisal also gives you the opportunity to address any valuation concerns upfront and make necessary adjustments or improvements to boost your home’s value. However, market conditions can change, so consider the timing of your appraisal and consult with a real estate professional to determine the best strategy for your situation.

How can an appraisal affect my home sale?

An appraisal can significantly affect your home sale by setting a benchmark for the property’s value, which lenders use to determine how much they’re willing to loan to the buyer. A low appraisal can lead to renegotiations, potential sale delays, or even the collapse of the sale if the financial gap can’t be bridged.

Are there ways to avoid appraisal issues when selling?

While you can’t always avoid appraisal issues, you can minimize risks by setting a realistic price, preparing your home to look its best, and providing the appraiser with information about recent upgrades and comparables. Some sellers also opt for pre-listing appraisals to gauge their home’s value before setting a price.

Do cash buyers need appraisals?

Cash buyers do not require an appraisal for financing purposes, as they are not obtaining a mortgage. However, they may choose to have an appraisal for their peace of mind or to ensure they’re making a sound investment. Sellers might prefer cash offers to bypass the potential complications of appraisal-related financing contingencies. HomeLight’s Simple Sale platform provides cash offers in 24 hours, allowing you to close the sale in as few as 10 days.

Partner with a top agent to price and sell your home

Selling your house for more than its appraised value is a nuanced process, influenced by market dynamics, buyer sentiment, and the unique characteristics of your property. While navigating appraisal gaps and valuation discrepancies can seem daunting, understanding the mechanisms at play equips you with the knowledge to make informed decisions and maximize your home’s selling potential.

Remember, every real estate journey is unique, and having the right support can make all the difference. If you’re looking to sell your home and want expert guidance tailored to your specific situation, consider using HomeLight’s Agent Match tool. Our platform connects you with top-performing real estate agents in your area, ensuring you have a knowledgeable partner to help you navigate the complexities of the market, from appraisal to closing.

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