Home Value (Appraisal Gap) in a Competitive Market Place

With the real estate prices increasing by leaps and bounds the real estate enthusiasts who always seem to be on the lookout for a good real estate offer so that they could strike a deal. While the real estate sellers justify the hikes in home value or real estate property in general – with the constant inflation in the competitive marketplace, the real estate enthusiasts are aware that there is always some margin to fill the appraisal gap during that bidding war.

The term “appraisal gap” might be alien to many of our readers, especially the ones who are just learning about real estate right now and are not proper real estate enthusiasts or buyers.

In this article, we shall shed light on what exactly is an appraisal gap? What is its value or status in the real estate world and how should a potential buyer condense this gap.

What is a home value / house appraisal and what is its purpose?

The home value (house appraisal) is a practical and unbiased comparative market analysis of the house you are about to purchase so that the final purchase price is fair to the buyer, seller, and every relevant stakeholder involved during the process. People are generally curious about the value of their home. They sometimes use home value estimator or take offers from the real estate agents.

Zillow home value is a home value estimator that is available online where you can estimate your home value. It answers, ‘ How much is my home value?’; How to find the value of your home?; How often does the home value change?; What is the difference between the appraisal, zestimate and zillow home value offer?

Factors involved while generating a home value / appraisal

When a team arrives to assess the property for a home value / house appraisal, there are a variety of factors on which that analysis is based. Not only is a comparative analysis of the real estate market value of the property under consideration is drawn but also aspects such as the quality of the material used in building the house, location, the utilities of the area, total number of rooms, how old or new the property is, outdoor spaces and even square footage is calculated in some cases.

Home value in the competitive market

We have now understood that what basically an appraisal is and how it is essential in the real estate business. Now, what exactly is home value? How and why does it occur? How is a buyer supposed to eradicate this issue to ensure that the property he’s investing in does not make him go through any loss later?

The appraisal gap / home value is the difference in the financial amount that is stated in the contract and the additional home value that it has earned during a certain period of time. In order to cover this issue, the home buyer now has to pay a little extra amount of cash.

Now the benefit here is that an appraisal ensures that we are not being scammed BUT there are still many aspects due to which as much as the home sellers appreciate it, the real estate buyer community gets discouraged from setting up a deal. It becomes a huge risk as the bank does not offer to pay you more when the price hikes and the seller becomes entitled to demand more cash. In this way, the buyer most definitely has to keep in mind the margin of having a specific amount of money with him. Just in case there’s a spike in the price later, the buyer would most definitely have to cover it on his own and even the bank won’t offer a loan this time.

Important Examples

If the above explanation left any queries unanswered, the below example would most definitely clarify all of your confusion.

Let’s suppose, there is a house on sale and it is listed at 1.5 crores Pkr. Now you have decided to place an offer of 2 crores Pkr with a margin of 50 lacs Pkr as an additional home value / appraisal gap. Now what happens is that in case the property under consideration appraises an amount of 1.5 crores Pkr the property seller would get 2 crores Pkr. In such a situation, the seller would have to bring 50 lacs Pkr cash to balance out the gap occurring in the contract and the appraisal. If the home already appraises for the initially proposed price mentioned in the contract, you do not have to hand over any additional cash.

Balancing out the difference

A major confusion that arises during this process is that is the amount of appraisal paid along with the initial down payment and could be retrieved later if the appraisal gap does not occur after finalizing the deal? The answer to that is No. The buyer has to separately pay the downpayment and keep the cash saved with him for later in case there is found an appraisal gap in the final contract and appraisal.

This might or might not yield a definite and fruitful impact on the overall process of procuring the house since the buyer could never be sure whether the amount of appraisal would have to be used later or not.

Keeping the above aspect in mind, it is always decided to pay the appraisal way after the deal has been struck. It is suggested to pay for it during the final payment or last lease (depending upon the decided payment plan). So that there is no ambiguity as to how much monetary amount is to be paid overall whether inclusive or exclusive of the amount of appraisal.

To avoid any issues in the future, every single point must be discussed in detail by the seller and the buyer or any other involved relevant stakeholders. Every single minor detail has to be decided prior and all the essentials must be included in the written contract. All stakeholders must keep a copy of the contract with themselves. In this way, there would be no scams, frauds, or any other legal issues for anyone involved as well as every party would get a fair deal.

Properties that do not involve home valuations

As discussed, as much as the inclusion of an appraisal excites a seller, this procedure tends to discourage a buyer. For the buyer, there are many indefinite risks involved during the whole process. If you are a buyer or a real estate enthusiast who wants to procure a property which guarantees increase in real estate value here is a list of properties that are very feasible with convenient payment plans.

Capital Smart City

Lahore Smart City

DHA Multan

Park View City Islamabad

Top City-1

DHA Lahore

Royal Orchard Multan

The above-mentioned real estate projects are every real estate enthusiast’s delight. Most buyers actually wait for their new property listings so that they could make an offer as soon as there is a new launch from them.