For new buyers and agents who’ve only known the post-COVID extreme seller’s market, this is your wake-up call. The real estate frenzy, driven by historically low inventory, has pushed buyers to waive appraisal contingencies and cover appraisal gaps just to secure a home. While these aggressive tactics may have been necessary to compete, they often mean overpaying for a property—a risky move that doesn’t always make financial sense. As we’re just starting to see more inventory come to market, the landscape is shifting toward balance, and appraised value is reclaiming its importance. At Jones Hollow Realty Group, we’re here to help new buyers and agents practicing in this intense era understand why appraisals matter and how to navigate this transition wisely.
Why Appraised Value Matters to Your Lender
When you’re financing a home purchase with a mortgage, an appraisal is a mandatory step in the process. Lenders require an independent appraisal, conducted by a licensed professional, to confirm that the property’s value supports the loan amount you’re requesting. This ensures the home is worth what you’re paying, protecting the lender’s investment in case you default on the loan. If the property’s appraised value falls short of the purchase price, the lender may not approve the full loan amount, as they won’t finance a property that doesn’t align with its market value.
Whether your contract has an appraisal contingency or a financing contingency (which is dependent on an appraisal), these clauses allow you to renegotiate or walk away if the appraisal comes in lower than your offer. In a balanced market, these contingencies are standard safeguards, giving you options to adjust the deal or protect your finances. However, in the recent seller’s market, low inventory and fierce competition led many buyers to waive these contingencies to make their offers more attractive. Some even agreed to cover the “appraisal gap”—the difference between the appraised value and the purchase price—out of pocket. For example, if you offer $500,000 but the home appraises at $475,000, you’d need to bring an extra $25,000 to closing. While this might help you win the home, it means paying more than the property’s current market value, which can strain your finances and affect future resale potential. For lenders, a low appraisal signals risk, making the appraisal a critical piece of the financing puzzle.
The Risks of Ignoring Appraised Value
Waiving appraisal contingencies or covering gaps may feel like a must in a hot market, but it’s not always a smart business decision. Here’s why:
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Overpaying Reduces Equity: Paying more than the appraised value starts your homeownership with less equity. If the market cools or you need to sell sooner than expected, recovering your investment could be tough.
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Cash Flow Strain: Covering an appraisal gap demands extra cash at closing, which can drain savings and limit your ability to handle repairs, upgrades, or unexpected expenses.
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Lender Restrictions: Even if you’re willing to cover the gap, lenders may hesitate to approve a loan for a property that appraises significantly below the purchase price, as it increases their risk, potentially derailing the deal.
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Market Shifts Change the Game: As more inventory hits the market, the need for such aggressive tactics fades. Overpaying now could leave you at a disadvantage in a balanced market where buyers have more negotiating power.
A Changing Market: Appraised Value Takes Center Stage
As we head into 2025, we’re just starting to see more inventory come to market, easing the cutthroat competition of the post-COVID era. In a more balanced market, waiving contingencies like appraisals or inspections—common during the frenzy—will no longer be the norm. Buyers and agents new to the market may be unfamiliar with how appraisals and negotiations work when conditions even out. Here’s what to expect:
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Appraisals Align with Offers: In balanced markets, appraised values often align more closely with purchase prices, but low appraisals can still happen. With an appraisal or financing contingency, you can renegotiate, cover the gap, or walk away, giving you flexibility to make informed decisions.
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Negotiation Becomes Key: Sellers are more likely to collaborate on appraisal gaps, either by lowering the price or splitting the difference. This contrasts with the “take it or leave it” mindset of a seller’s market.
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Contingencies Are Standard Again: Appraisal and inspection contingencies return as standard practice, allowing buyers to protect their interests without losing competitiveness. You can bid confidently, knowing you have room to adjust if issues arise.
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Smart Offers Stand Out: Instead of waiving contingencies, strengthen your offer with flexible closing dates, a strong pre-approval, or earnest money. Our team at Jones Hollow Realty Group can help craft compelling offers without unnecessary risks.
Tips for Buyers: Prioritizing Appraised Value in Any Market
Whether you’re a first-time buyer or an agent navigating a shifting landscape, here’s how to approach appraisals strategically:
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Know Your Budget: Before waiving contingencies or covering gaps, assess your finances. Ensure you have enough cash reserves to manage extra costs without financial strain.
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Partner with Experts: A skilled real estate agent can evaluate the risks of waiving contingencies based on market trends and the property. At Jones Hollow Realty Group, we stay ahead of market shifts to guide you toward sound decisions.
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Get Pre-Approved: A robust pre-approval signals to sellers that you’re a serious buyer, reducing the need to waive contingencies to stand out.
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Think Long-Term: Consider your plans for the home. If you’ll stay long-term, a slight overpayment may be less critical. For shorter-term investments, stick closer to appraised value.
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Stay Market-Savvy: Inventory, interest rates, and local demand shape how appraisals impact deals. Subscribe to our Jones Hollow Realty Group newsletter for tailored market updates.
Moving Forward with Jones Hollow Realty Group
As the market evolves with more inventory, appraised value is regaining its significance, empowering buyers and agents to make decisions that balance ambition with financial prudence. While waiving appraisal contingencies was once a necessity in the extreme seller’s market, balanced conditions offer a chance to prioritize value without sacrificing competitiveness. At Jones Hollow Realty Group, we’re committed to helping new buyers and post-COVID-era agents navigate these changes with confidence and expertise.
Ready to find your dream home while making appraisal-savvy choices? Contact Jones Hollow Realty Group today to connect with our experienced agents. We’ll guide you through the appraisal process and help you craft offers that align with your goals in any market. Visit our website at [insert website] or call [insert phone number] to start your journey. Let’s make your homeownership dreams a reality—strategically and successfully.