An appraisal can become an important part of the transaction when you're buying or selling in St. Louis. With inventory and buyer demand shifting throughout the area, there are times when the price a buyer agrees to pay differs from the value an appraiser ultimately determines.

Understanding Why Value Gaps Are Happening

Appraisers look to comparable sales data to help determine the value of a property. But when market conditions change quickly, the sales an appraiser considers may have taken place months earlier, creating a lag between what buyers are currently willing to pay and the value on the appraisal.

There are other factors at play as well, including:

• Limited inventory in certain neighborhoods leading buyers to pay higher prices
• Homes with upgrades compared to comps with no upgrades
• Unique properties or neighborhoods that make finding close comparable sales more difficult
• Multiple offers driving up the final sale price of a home

These realities are all a normal part of doing business in today's St. Louis market. It simply means buyers and sellers need to be more diligent in their preparations.

What Buyers Should Know Before Making an Offer

Multiple offers still occur in parts of the St. Louis area, particularly for desirable homes that are priced well. This means buyers and their agents need to understand the value gap risks ahead of time. While an appraisal may support the contract price, it can also come in lower, potentially leading to additional negotiations depending on the financing and terms of the contract.

Some of the ways buyers can prepare for a potential value gap during their home purchase include:

• Getting pre-approved with a lender who can explain appraisal contingencies
• Setting aside funds to cover a potential gap if needed
• Working with agents to get the most accurate comparable sales data possible
• Deciding ahead of time how much of a gap is acceptable

What Sellers Should Know Before Listing a Home

When it comes to value gaps in St. Louis, sellers also need to think beyond the offer price. It's understandable that a seller will want to receive the most money possible for their property, but it's equally important to remember that a low appraisal can create financing complications for the buyer.

Some things sellers should know about value gaps include:

• Providing details about significant improvements made to the home
• Making sure relevant information about the property is available to the appraiser
• Working with their agent if additional comparable sales or property information may be useful
• Remaining flexible during negotiations if an appraisal comes in below the contract price

The Future of Value Gaps in St. Louis

Value gaps aren't new to the St. Louis metro area, and they can be difficult to predict as inventory, pricing, and buyer demand change throughout the region. Because the St. Louis market includes neighborhoods and communities with very different housing stock, prices can vary considerably from one area to another.

Value Gap Considerations

What causes a value gap?

A value gap occurs when the appraised value of a home is lower than the price a buyer has agreed to pay. Because appraisers rely heavily on recent comparable sales, the appraisal may not always reflect a particularly competitive offer or features that buyers are willing to pay more for. Unique homes and areas with fewer recent comparable sales can also make valuation more complicated.

Can an appraisal be disputed?

A buyer may be able to request a reconsideration of value through the lender if there appears to be incorrect information, overlooked property features, or more appropriate comparable sales. The lender will generally have a process for submitting that information, but requesting a review does not guarantee that the appraised value will change.

Does it occur throughout St. Louis?

A value gap can occur anywhere in the St. Louis area, but the circumstances vary by property and neighborhood. It may be more likely to become an issue when there are few recent comparable sales, a property has unusual features, or competition pushes an accepted offer above the prices reflected in nearby closed sales.

Prepare for the Appraisal Before You Reach the Closing Table

Value gaps can complicate buying and selling in St. Louis, but understanding the appraisal process ahead of time can make those conversations easier. Buyers should know how much flexibility they have if the appraisal comes in low, while sellers should make sure important information about their property is available before the appraisal takes place.

Having the right team in your corner can make all the difference. Get in touch with RedKey Realty Leaders to talk through your situation before you sign anything.