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If you’re searching for drama, don’t limit yourself to Netflix. Instead, tune in to the real estate market, where the competition among buyers has never been fiercer. And with homes selling for record highs,1 the appraisal process—historically a standard part of a home purchase—is receiving more attention than ever.

That’s because some sellers are finding out the hard way that a strong offer can fizzle quickly when an appraisal comes in below the contract price. Traditionally, the sale of a home is contingent on a satisfactory valuation. But in a rapidly appreciating market, it can be difficult for appraisals to keep pace with rising prices.

Thus, many sellers in today’s market favor buyers who are willing to guarantee their full offer price—even if the property appraises for less. For the buyer, that could require a financial leap of faith that the home is a solid investment. It also means they may need to come up with additional cash at closing to cover the gap.

Whether you’re a buyer or a seller, it’s never been more important to understand the appraisal process and how it can be impacted by a quickly appreciating and highly competitive housing market. It’s also crucial to work with a skilled real estate agent who can guide you to a successful closing without overpaying (if you’re a buyer) or overcompensating (if you’re a seller). Find out how appraisals work—and in some cases, don’t work—in today’s unique real estate environment.


APPRAISAL REQUIREMENTS

An appraisal is an objective assessment of a property’s market value performed by an independent authorized appraiser. Mortgage lenders require an appraisal to lower their risk of loss in the event a buyer defaults on their loan. It provides assurance that the home’s value meets or exceeds the amount being lent for its purchase.

In most cases, a licensed appraiser will analyze the property’s condition and review the value of comparable properties that have recently sold. Mortgage borrowers are usually expected to pay the cost of an appraisal. These fees are often due upfront and non-refundable.2

Appraisal requirements can vary by lender and loan type, and in today’s market in-person appraisal waivers have become much more common. Analysis of the property, the local market, and the buyer’s qualifications will determine whether the appraisal will be waived. Not all properties or buyers will qualify, and not all mortgage lenders will utilize this system.3 If you’re applying for a mortgage, be sure to ask your lender about their specific terms.  



If you’re a cash buyer, you may choose—but are not obligated—to order an appraisal.


APPRAISALS IN A RAPIDLY SHIFTING MARKET

An appraisal contingency is a standard inclusion in a home purchase offer. It enables the buyer to make the closing of the transaction dependent on a satisfactory appraisal wherein the value of the property is at or near the purchase price. This helps to reassure the buyer (and their lender) that they are paying fair market value for the home and allows them to cancel the contract if the appraisal is lower than expected.

Low appraisals are not common, but they are more likely to happen in a rapidly appreciating market, like the one we’re experiencing now.4 That’s because appraisers must use comparable sales (commonly referred to as comps) to determine a property’s value. These could include homes that went under contract weeks or even months ago. With home prices rising so quickly,5 today’s comps may be lagging behind the market’s current reality. Thus, the appraiser could be basing their assessment on stale data, resulting in a low valuation.


HOW ARE BUYERS AND SELLERS IMPACTED BY A LOW APPRAISAL?

When a property appraises for less than the contract price, you end up with an appraisal gap. In a more balanced market, that could be cause for a renegotiation. In today’s market, however, sellers often hold the upper hand.

That’s why some buyers are using the potential for an appraisal gap as a way to strengthen their bids. They’re proposing to take on some or all of the risk of a low appraisal by adding gap coverage or a contingency waiver to their offer.

Appraisal Gap Coverage

Buyers with some extra cash on hand may opt to add an appraisal gap coverage clause to their offer. It provides an added level of reassurance to the sellers that, in the event of a low appraisal, the buyer is willing and able to cover the gap up to a certain amount.6

For example, let’s say a home is listed for $200,000 and the buyers offer $220,000 with $10,000 in appraisal gap coverage. Now, let’s say the property appraises for $205,000. The new purchase price would be $215,000. The buyers would be responsible for paying $10,000 of that in cash directly to the seller because, in most cases, mortgage companies won’t include appraisal gap coverage in a home loan.6

Waiving The Appraisal Contingency

Some buyers with a higher risk tolerance—and the financial means—may be willing to waive the appraisal contingency altogether. However, this strategy isn’t for everyone and must be considered on a case-by-case basis.

It’s important to remember that waiving an appraisal contingency can leave a buyer vulnerable if the appraisal comes back much lower than the contract price. Without an appraisal contingency, a buyer will be obligated to cover the difference or be forced to walk away from the transaction and relinquish their earnest money deposit to the sellers.7

It’s vital that both buyers and sellers understand the benefits and risks involved with these and other competitive tactics that are becoming more commonplace in today’s market. We can help you chart the best course of action given your individual circumstances.


DON’T WAIVE YOUR RIGHT TO THE BEST REPRESENTATION

There’s never been a market quite like this one before. That’s why you need a master negotiator on your side who has the skills, instincts, and experience to get the deal done...no matter what surprises may pop up along the way. If you’re a buyer, we can help you compete in this unprecedented market—without getting steamrolled. And if you’re a seller, we know how to get top dollar for your home while minimizing hassle and stress. Contact us today to schedule a complimentary consultation.


Sources:

Wall Street Journal -
https://www.wsj.com/articles/u-s-home-prices-push-to-record-high-slowing-pace-of-purchases-11621605953
US News & World Report - https://realestate.usnews.com/real-estate/articles/what-is-a-home-appraisal-and-who-pays-for-it
Rocket Mortgage –
https://www.rocketmortgage.com/learn/appraisal-waiver
Money -
https://money.com/coronavirus-low-home-appraisal/
S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index - https://www.spglobal.com/spdji/en/indices/indicators/sp-corelogic-case-shiller-20-city-composite-home-price-nsa-index/#overview
Bigger Pockets -
https://www.biggerpockets.com/blog/appraisal-gap-coverage
Washington Post -
https://www.washingtonpost.com/realestate/competitive-buyers-waive-contingencies-to-score-homes-in-tight-market/2021/06/02/d335b050-af2c-11eb-b476-c3b287e52a01_story.html

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What our clients are saying  

Richard and the team at Bay Realty of Florida have helped us buy one and sell two houses. In every case, they have been exceptional partners who have gone above and beyond to clear obstacles and make the process smooth. I can’t recommend them highly enough.

 

~ Joel T

My wife and I had a wonderful experience working with Richard as our real estate agent during our home search. We met Richard over a year ago at an open house event when we were just beginning our home buying journey. He is extremely knowledgeable and easy to work with and made himself available whenever we needed him to. His professionalism and wealth of knowledge made us comfortable from start to finish. Strongly recommend Richard to anyone wanting a seamless home buying experience!

 

~ Andrew D

Richard helped us buy our current home and went above and beyond to sell our previous home!! We would very highly recommend Richard and the Bay Realty family to anyone.

 

~ Sara T

We've had the pleasure of working with Richard and truly can't say enough great things. He was patient as we searched for years. He guided us through the purchase of our new home as well as seamlessly listing and selling our previous property quickly. His market insight, negotiation skills and attention to detail were unmatched. We always felt like a priority and appreciated the honest advice and consistent communication, If you're looking for someone trustworthy, experienced and dedicated, look no further than Bay Reality. Highly recommended!

 

~ Michael K

Can’t get a better realtor than Richard! He always had our best interests in mind. He was so patient with us as we looked for years for a new home. He never showed that he was annoyed or bothered when we asked for anything! He was very responsive to any and all questions. If we had to do it all over again, we would definitely use Richard again!

 

~ Kristin K

My husband and I had a fantastic experience working with Richard as our real estate agent. From start to finish, he was incredibly knowledgeable, punctual, and professional. He guided us through the entire process with ease, answered all of our questions, and made what could have been a stressful experience feel quick and straightforward. I truly appreciated his expertise and reliability, we couldn't be happier with the outcome. Highly recommend Richard to anyone looking for a smooth and successful real estate experience!

 

~ Alyssa D

Richard Dombrowski is a very professional individual with the ability to balance the buying and selling of houses in all price ranges with poise, courtesy, and good business sense. With decades of experience, he knows the Tampa area better than most. He expertly explains the process to those who need more detail and advocates for you every step of the way. We moved a family of 5- which is not always fun, but I can confidently state that with Richard, he alleviated much of the stress while making sure we were heard.

 

~ Natalie W

This was my second time buying a house, and I can confidently say that working with Richard made all the difference. Compared to my first home-buying experience, this time was much smoother because he was incredibly attentive to my needs and always available to answer questions. Richard took the time to understand what I was looking for, provided great insight on the market, and guided me through every step of the process. Whether it was scheduling showings, negotiating, or handling the details, he went above and beyond to ensure everything went as seamlessly as possible. If you're looking for a knowledgeable, professional, and dedicated realtor, I highly recommend Richard. I’m grateful for the great experience and love my new home!

 

~ Scott T

Working with Richard was a pleasure! He helped me navigate buying my home while I was initially out of state. His attention to detail and background knowledge in home building was immensely valuable during my home search. Beyond his professional skills, he’s a personable guy who makes good conversation. I recommend him without reservations!

 

~ Luke B

We had the good fortune to have Richard as our realtor when selling our house. He was so helpful from the start and helped navigate us through the whole process with ease. He is a good communicator and was very responsive whenever we needed to get in touch with him. We had a few snags in the process and Richard always gave us sound and thoughtful advice. Because of his professionalism and expertise, we feel that we came away with a fair deal. We wholeheartedly recommend Richard as an outstanding realtor and would use him again!!

 

~ Linnea N

Richard is the absolute BEST realtor we have ever had. We moved from Michigan to Florida and were very nervous about finding a new home down here. Richard was referred to us by a friend and she assured me that he would find us the perfect home and that he is a great person to work with. We were staying in an Airbnb while looking at homes with Richard, which was stressful to us as we felt very displaced. I had many questions and concerns and he answered everything with so much patience and kindness. We found our Florida dream home with Richard’s help and are so extremely grateful for his guidance through such a stressful process. He was so genuine and professional and we honestly couldn’t have asked for a better realtor. If we move again, we will contact Richard right away and will be happy to refer him to others. Richard, thank you so much for everything! We truly enjoyed working with you!

 

~ Jennifer K

Thank you, sir! It was a pleasure working with you for both transactions! Looking forward to doing more business with you in the future!

 

~ Evan A

Richard went above and beyond from start to finish. Whenever I had questions or needed assistance, he was incredibly quick to respond. His availability and willingness to address my concerns promptly made the process smooth and stress-free. When we encountered challenges, Richard remained calm and resourceful. I highly recommend to anyone seeking a top-notch realtor. I would gladly work with him again in the future!

 

~ Amanda A

Richard was hands down the greatest Real Estate Agent I have ever had the pleasure of working with. He made the entire process from the offer to closing so smooth, and any obstacle that came up Richard always had a solution. Richard's experience in the real estate business is exceptional and much needed and I would easily use him again for our next home. Richard's warm smile and confidence is exactly what we needed in helping my wife and I buy our new home. Richard also goes above and beyond in coordinating all the steps of buying a home between the title company, Mortgage Lender, and Sellers. I could not thank him enough for everything that he did!

 

~ Ramzy D

Richard has represented the sale and purchase of our family homes and investment properties for more than 10 years…his extensive knowledge of the real estate industry has made each transaction flawless!

 

~ April R

I know my fair share of realtors who expect 3% commission for what seems like a fairly straight forward process, because that is the industry standard. Richard is different. His expertise after decades of working the area, his relationships with vendors you can use during the inspection and closing process, and his willingness to make changes as is necessary in order to ensure a successful deal make him different. My wife and I have plenty of friends who are realtors that we could work with, but would decide to work with Richard because of the value he has proven to us that he brings.

 

~ Alex H

Richard and Bay Realty are the absolute best! He’s bought and sold 3 houses for us now and it’s been the best experience you can imagine. What sets him apart is his responsiveness, diligence and superior marketing skills. Not to mention he is just a phenomenal person. I highly recommend!

 

~ Ryan G

He’s the best of the best!!! Couldn’t ask for a better experience with a realtor. He is thorough and has so much experience.

 

~ Lacy G

Richard exceeded all of our expectations. He was always there to answer questions and made a stressful situation less so. He was truly invested in us as both a seller and buyer. He is very knowledgeable and was able to describe each step along the way to a level we understood. He was down to earth and it was a pleasure working with him. I would highly recommend!

 

~ Melissa R

Richard was the key player in making my cross country move successful. He immediately understood what manner of house I wanted and preselected homes to streamline the process. I wholeheartedly recommend Richard.

 

~ Will M

Richard’s first-class professionalism, vast depth of knowledge, dedication, eye for detail, & genuine care for his clients is second to none. We are so appreciative of all of the evenings, late nights, weekends, and many hours of showings that he dedicated to our home search. It was a brutal market, but Richard made a long grueling journey a little less arduous and even entertaining and enjoyable along the way. He is always respectful, honest, a great listener, and is very intuitive to what we were looking for. He was very purposeful and strategic on how to put in an aggressive offer. In addition, he’s a great communicator, thoroughly answered any and all questions we had, and made sure we were fully informed every step of the way. Despite being some of the best realtors and broker we’ve ever worked with, Richard and Renae are even better human beings. You will be in the best hands here at Bay Realty as they are true professionals willing to go above and beyond to get the job done.

 

~ Jill C

My family moved to Tampa and didn’t know anyone. We were connected with Richard at Bay Realty through my work, and we were so thankful to have him on our team. Richard is one the kindest and most thoughtful people around. With the housing market in Tampa being brutal, we had to be able to get in to see homes quickly in order to have a chance. Richard was always on top of it and made sure we got in fast and were ready if we wanted to offer. Richard is intuitive and it didn’t take long before he could walk into the house and know whether or not we would like it without us saying a thing. He always tried to be creative with our offers to put us in the best possible position to win the bid. In a difficult market, Richard’s optimism, encouragement, and sense of humor got us through until we finally landed an amazing home for our family. I would highly recommend using Richard and Bay Realty to anyone looking to purchase or sell a home.

 

~ Barry C

I can’t speak highly enough of our experience with Richard. We had recently relocated from Chicago and he was not only able to help us find a house in the short timeframe we needed but also helped us through the entire process from start to close. This is not the first home we have purchased but it was easiest and smoothest. I recommend him to anyone looking to purchase a home.

 

~ Nick L

I met Richard at the inspection for my current residence a few years back. He represented the seller. I was impressed with this work ethic, knowledge, and demeanor. Years later, we have kept in touch and work together from time to time. Highly Recommend.

 

~ Paul M

Richard was amazing to work with! He scheduled showings right away and always around our schedule which is extremely helpful! He was always on time and super nice person to get to know! We enjoyed our home buying experience because of him. 100% recommend Richard for all real estate needs!

 

~ Jordan L

Richard has serviced us above and beyond our expectations! Not only with one transaction but two. He was professionally proficient and yet with a personal touch that made all the details easy. We would highly recommend him!

 

~ Dan B

If you don't use Bay Realty don't blame me because I am here to tell you they are the easiest, professional and most competent realtors in the world yes the world. Richard was with me every step and guided me to a smooth, seamless and profitable transaction! I have always been a relationship guy and when I find those people that I feel love what they do and take pride it their performance they will be my go to for everything related. Richard and the team at Bay Realty are my always go to for real estate. Like I said if you don't go to them don't blame me because Florida real estate is full of hacks who use social media to make you believe they are good but there is no smoke and mirror with Bay only execution and results.

 

~ John L

Outstanding! Professional! Responsive! Richard Dombrowski has consistently demonstrated the utmost professional, genuine care of our family's needs as he orginally found our home and when it came time to sell, it was obvious we were going back to him! Each time, he takes an execeptional amount of time to fully understand the needs, our desires and lays them out to us with pure professionalism. In a field saturated with real estate professionals, just look at Richards background, experience, breadth of knowledge in a multitude of areas and you will quickly understand why he would be the only real estate professional you would ever consider. I can assure you of that when you meet him. Oh yea, he set a record on our home sale with over 55 showings in 48 hours and 5 offers well above asking price!

 

~ Weston A

To have any kind of chance in this crazy housing market, you need a top agent on your side. Richard is that guy. With his responsiveness, patience, and tenacity, he was able to sell out condo at a price above our expectations and help us land our dream home when most other agents would've given up. Richard treats you like family and takes every search personally. We could not have managed this without him. Don't hesitate to give him a call.

 

~ Brian C

Richard represented us as our selling agent after our previous experience working with him as a buyer! Once again he more than met the need! As before Richard handled everything related to the sell in a professional but personal manner, providing clear communication and superior advice which resulted in a seamless transaction! We highly recommend Richard to everyone for any real estate needs! Thanks again Richard!

 

~ Beau B

Richard has handled our 1 home purchase and 2 home sales since 2012. Both sales we had contracts within 4 days. Richard excels at calming nerves & finding perfect solutions when the process presents the unexpected! Richard responds to calls & texts quickly and with needed answers. You can tell that Richard loves what he does which is why he is so good at helping find that perfect house!

 

~ Dianna

Positive Responsiveness, Quality, Professionalism, Value

 

~ Cee C

Richard handle everything for our new home purchase. From first days of sending us opportunities, to taking us around exploring these opportunities, to the final stage of closing, he has been completely responsive and professional. You might think that he has no other clients but you, because he is so focused on your situation. His knowledge in the business is first rate, seems to know someone everywhere as you proceed along the way. I do highly recommend his services.

 

~ Tony W

Richard was wonderful. He guided me through the entire process like a friend. Buying a home was a new experience for me. Richard was absolutely wonderful. He was very professional but also treated me like a good friend who he was helping out. I trusted him from the beginning. I had so many questions and he either knew the answer or he found the answer for me. He was so kind and generous, going out of his way to help me and reassure me and help me navigate the whole process as smoothly as possible. I can't imagine another realtor who would have "gone the extra mile" as many times as he did for me. I highly recommend him.

 

~ Clara W

We interviewed 3 realtors before we chose Richard to sell our house. The others treated the interview as a casual chat with little information regarding their actual sales plan. Richard was fully prepared and took us through all the steps and different scenarios. He guided us on how best to prepare our home for sale. Before we placed the house for sale, he had reviewed comps again and suggested we raise the price. We did and he sold it the first day for our asking price. This was a big relief as we did not want to own 2 homes and pay 2 mortgages.

 

~ Carol F

Patient and looked out for our best interest. Richard was very helpful in our search for a new home, he understood our needs and also appreciated where we were in our process. We are very happy with the outcome of the sale on our home. Richard gave good counsel and was influential with listing our property at the right price and at the best time. Our home sold exactly in the price range we expected and Richard guided us at every stage.

 

~ Rick B

Smoothest sale ever! When we met with Richard to sell our home, he already prepared a market analysis so we were able to price our home that made sense. He listed the home. By that weekend he had an open house. One of our neighbors that went to the open house said “that was the best open house I've ever seen’. By Monday we had 2 offers. All the negotiations and coordination of the activities were flawless, with zero conflict. Best, easiest, smoothest sale ever. We highly recommend Richard.

 

~ Terri C

Richard is the most knowledgeable, caring and invested realtor I have ever worked with. Richard went above and beyond trying to sell our house. His professionalism, positive attitude and knowledge of the market sold our house during covid 19. I definitely recommend Ruchard’s services.

 

~ Angelica G

Excellent Realtor Richard is very knowledgeable and the sale went very smoothly. We had our house under contract in 8 days.

 

~ John H

Knowledgeable and Helpful This was our first experience selling a home. Richard helped us buy our house then a few years later sell our house. We were under contract in just 8 days. He helped us understand how to stage our house and basically led us through the process of selling step by step. If you want someone who is knowledgeable about realty and all the ins/outs then Richard is you man. He will give his honest opinion at all stages of the process.

 

~ Bette H

Richard went above and beyond to accommodate our needs. We were involved in an out-of-town purchase, and Richard advised in so many areas beyond the actual purchase.

 

~ PJ W

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