How to Win Multi-Offer Situations: The Appraisal Gap

Getting your offer selected out of a dozen others is a challenge. Agents are doing everything they can to be creative with their strategies to get their clients to stand out, but there is always one buyer who throws an outrageous amount over asking to create a situation where the offer is "too high to refuse". Is this always the best idea for a seller to accept? No, it is actually risky because if the buyer is applying for a mortgage, the house must appraise at the high sale price for the mortgage to be approved and it is unlikely to do so if there aren't comparable recent sales at the inflated price. This is referred to as the "Appraisal Gap". How do you alleviate some of the risk of the deal falling apart over an appraisal gap?

Offer to cover part of the appraisal gap in cash.

If the buyer has some extra liquidity in addition to the down payment and closing costs, they may put in their offer that they will cover up to $X of the appraisal gap, if it occurs. It is a showing of good faith on the part of the buyer that they are willing to meet the seller part of the way to keep the deal alive if the appraisal comes back low. It also shows that your agent is knowledgeable and experienced, and most likely will handle the transaction with professionalism and care while working with the listing agent and financing partners throughout the process.

The highest offer is not always the best offer. It is a combination of terms and strategy that provides the least risk to the seller that often wins the day.