We’ve talked before about how in Denver’s hot housing market buyers are requesting fewer contingencies to stand out from other bidders. Contingencies are conditions buyers often create before making an offer on a house – this can include inspection contingencies, financing contingencies, among others. To better compete with other bidders, homebuyers as of late are waiving the appraisal contingency and offering to pay the difference if the appraisal comes in higher than the asking price. But what does this mean for you as a buyer?

Let’s start at the beginning. When you set out to buy a home, your mortgage lender will almost always order a home appraisal. This is done to verify the home is worth the money they’re lending you and that they’ll recoup their investment if you should default on the loan.

If the appraised value of the home matches or exceeds the listing price, there’s no problem. But let’s say the home is listed for $450,000 and only appraises for $435,000. The remaining $15,000 must be paid by either the buyer or seller. If the seller is motivated, you may be okay. But if it’s a seller’s market like Denver, it’s not likely the seller is going to lower the asking price.

Appraisal gap coverage is when you agree to cover any shortage between the offer price and the appraised value. It’s written into the contract and typically has a maximum of how high you’re willing to go. The purpose is to show the seller that you’re serious.

The appraisal contingency is a condition that’s set in place so the buyers can walk away from a deal with their earnest money if the appraisal comes back low. In a seller’s market, you could waive this contingency all together or waive the appraisal and agree to pay the asking price – it really depends on your loan amount and maximum budget.

If you’re ready to buy in Denver your real estate agent can explore this option with you further and see if it’s appropriate for your situation. That’s why it’s so important to have an experienced professional in your corner. Give Metrowest a shout today and let’s discuss your options!