Could a valuation gap clause make your home offer stand out?

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Homebuyers have faced tough conditions for months as the supply of homes is very tight and prices have soared in many parts of the country. Although there are signs house prices could follow a downward trajectory, right now it’s still a seller’s market in many places. This means that buyers may still encounter difficulty in get an approved offer.

If you’re having trouble convincing a seller to accept offers you make to buy properties, you might want to consider a valuation gap clause to set yourself apart from others and give you an edge.

What is a valuation difference clause?

A valuation difference clause is included in an offer to purchase a home. Essentially, if you include an appraisal variance clause, you are offering to cover the difference between what you were willing to pay for the house and the appraised amount for the house.

For example, suppose you were offering to buy a house for $250,000, but the house was valued at $200,000. If you included a valuation variance clause, you indicated that you would be willing to offer an additional $50,000.

Because sometimes there can be a large gap between a home’s valuation and the amount you’ve offered it, especially in competitive markets, you can include a limit if you include a gap clause. Evaluation. For example, you could offer to cover up to $20,000 more on the house if it is not appraised at the price you agreed to buy it.

Why would a valuation difference clause be useful?

A valuation gap clause is useful because a low valuation can impact your ability to get a mortgage.

Mortgage lenders require appraisals because they want to be sure the home’s market value is high enough to secure the mortgage. Mortgages are secured debt with the house acting as collateral, and if the house isn’t worth as much as you paid for it, the bank might not be able to sell it enough to recoup its costs if it were to foreclose.

Since lenders require the home to be appraised for a certain amount, home sales can plummet due to a low appraisal. Sellers don’t want to risk taking the home off the market only to have the deal fail if a buyer can’t get financing. A valuation gap clause helps reassure them that this will not happen.

Do you need to include a valuation difference clause?

A valuation gap clause can undoubtedly make a seller more likely to accept an offer. But if you include one, you could end up having to spend tens of thousands more dollars on the house. And you would pay more for the property than an expert is worth the house.

You will have to think carefully about whether you are ready to do this. If you think the house is worth the maximum amount you would pay (even after covering the appraisal gap) or if you think the value of the property will rise quickly and you really want to get into a house, then include a fair valuation gap clause may be your best move.

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We are firm believers in the Golden Rule, which is why editorial opinions are our own and have not been previously reviewed, approved or endorsed by the advertisers included. The Ascent does not cover all offers on the market. The editorial content of The Ascent is separate from the editorial content of The Motley Fool and is created by a different team of analysts. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

About Elizabeth J. Swartz

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