Showing posts from April, 2021

The Potential Impact of Appraisal Gap Clauses

By Mike Armentrout Despite a worldwide pandemic and uncertain economic conditions, the market frenzy continues to push real estate markets to new highs.   With supply and demand being so far out of balance, we are seeing some dynamics that are somewhat unprecedented for the Central Ohio market. Many will say that “a property is worth what someone is willing to pay” but this can only be true in a predominantly cash market.   Since approximately 90% of properties are financed, then the market will become subject to the risk tolerances of the lenders. With some buyers willing to pay more than market highs of sales and listings, they seem to be abandoning the principle of substitution which states that a buyer will not pay more than the price of an equivalent competing property.   This presents a major issue for real estate appraisers but more importantly, lenders. If buyers are boiling a purchase down to a payment over 15 or 30 years without regards to current value, this will ten