When buying a home, things don’t always go according to plan. Sometimes, your bank’s appraisal of a house comes up lower than your offer or even the seller’s asking price. If so, do you just walk away from your dream house?

An appraisal gap coverage will help you seal the deal on your dream house in such a situation. Let’s take a look at the meaning and usage of appraisal gap coverage.

The Basics: Appraisals And Offers

An appraisal is an estimation of a home’s value in the current market. Mortgage lenders carry out an appraisal by a licensed real estate appraiser to ensure that the buyer doesn’t overpay for a property. It also guarantees that they’ll be able to sell the property for the same value should you fail to pay the mortgage.

In a competitive market, buyers may offer a higher value than the selling price to get their offer accepted. Sometimes the appraisal value comes up lower than the buyer’s offer, and sometimes even the seller’s price.

Sometimes, sellers don’t do the things they should do to prepare for the real estate appraisal, which can influence how the appraiser perceives the property.

The appraisal gap coverage could be your saving grace when this happens.

Appraisal Gap Coverage: Explained

The scenario for buying a house is pretty much identical. You find a home that you like, and you negotiate the price. If the property is in high demand, you may offer a higher price than the asking price.

The seller accepts your offer, and then you apply for a mortgage. The mortgage lender then goes to appraise the property. If all goes well, the appraisal and your offer match. But rarely does that happen.

When the appraised value is lower than your offer, the seller and buyer have a few options:

Option A: the buyer convinces the seller to accept the appraised price.

Option B: the buyer covers the gap between the appraised price and their offer.

If neither A or B is possible, the deal will fall apart. However, there is another option—an appraisal gap coverage.

The appraisal gap coverage is the buyer’s assurance to the seller that they will cover a certain amount of the gap between the appraisal and the offer.

For example, if a house is listed at $300,000, the buyer may offer $310,000 with a $5,000 appraisal gap coverage. Then, the property is appraised at $305,000. The appraisal gap coverage then kicks in, so the buyer has to come up with $5,000 in cash to meet the offer price.

What If Your Appraisal Gap Coverage Still Doesn’t Meet The Offer Price?

What happens if the appraisal gap coverage still comes up short of your offer? For example, if you offered to buy a $300,000 at $315,000 with a coverage of $5,000, that is then appraised at $305,000.

With your coverage, the purchase price becomes $310,000. Although the total sale price is lower than your offer, it is still higher than the seller’s asking price.

So, they will still likely agree with this price. Additionally, you get to buy the house at a lower price than you originally intended. So, overall, it is a win-win situation. Thus, you can still push through with the sale.

Why Do You Need Appraisal Gap Coverage?

An appraisal gap coverage gives you an advantage over other buyers. Even if you offer to buy a house way over the asking price, it provides your offer substance through the insurance to cover the gap between the appraised value and your offer.

Including this with your offer makes the seller more likely to accept your offer over, for example, an equal offer without an appraisal gap coverage. This is because, with an appraisal gap coverage, the buyer is less likely to walk away from the deal regardless of the house’s appraised value.

Thus, it guarantees the buyer that they will pay for the property at a higher value than the asking price. Simultaneously, it reduces the chance of deals not pulling through.

How Does An Appraisal Gap Coverage Work With An Offer?

After the seller accepts your offer, you need to put your agreement in writing. This is when you will need to contact a real estate attorney to draw up a real estate sales contract or to review the one provided by the seller. The agreement will state the agreed-upon price, the appraisal gap coverage, and other essential terms of the sale.

Usually, when writing the appraisal gap coverage into the sales contract, you specify a fixed amount that you are willing to cover. Your contract should never state that you will cover an unlimited amount between the offer and the appraised value.

The contract should also state that the appraisal gap coverage should not exceed the agreed-upon amount. So, for example, if the appraised value is at $307,000 and you offered to pay $310,000 with an appraisal gap coverage of $5,000, you will only cover the remaining $3,000.

In any case, the appraisal gap coverage puts you at an advantage as a buyer because it guarantees a win-win situation for both you and the seller.

There are several instances where the explained scenario may not necessarily play out as simply as described. An example might be when the property to be purchased is being done under the auspices of a legal entity like an LLC or corporation or other such business entities, especially those with multiple owners.

In such circumstances, there may, for instance, be specific provisions contained within the operating agreement or bylaws of the entity that stipulates how or what may or may not be permitted in the acquisition of a new property or asset.

When such is the case, it is usually a good idea to ensure that the operating agreement is reviewed by an experienced business attorney to ensure that your appraisal gap offer or the contract you enter into with the seller does not violate any terms contained within.

About the author: The above article on the appraisal gap coverage was written by Kanayo Okwuraiwe. is a startup founder, an incurable entrepreneur, and a digital marketing professional. He is also the founder of a digital marketing company called Telligent Marketing LLC that provides attorney SEO services to help lawyers grow their law practices.

Until recently, one tried-and-true assumption about buying versus building held firm: Building a custom home was a drawn-out, messy process that in the end got you more bang for your buck — instant home equity. 

Today, however, you can’t take that for granted. COVID-related supply chain problems have driven building supply prices skyscraper-high and added about $35,000 to the cost of building an average home. 

So, should you build or buy a home in 2021?

What’s Happening to Building Supply Prices?

That said, kinks in building supply inventory are temporary, and lumber prices have been dropping for weeks. The effect of lower prices at the wholesale level has not yet filtered down to builders, who buy at the retail level. 

The good news for aspiring homeowners is that the cost of building should fall back a bit in the upcoming weeks.

According to the National Association of Home Builders (NAHB), “Depending on the rate and consistency of price decreases and whether prices have stabilized at the lower level, it may take a few weeks to a couple of months for builders to see price relief on the order initially reported in the futures or cash markets.” 

Different Types of Construction

There is more than one way to build a home. You might choose to buy new construction from a developer, have a custom home built to your specifications, or bargain hunt with a fixer-upper and remodel it from the ground up.

You may even consider going with an Eco-Friendly home.

When comparing the cost of building to buying, get a commitment for constructing the custom home you want at current prices. Compare that to a new developer home with similar features, a bargain that requires some fixing, and an existing home in excellent condition with the features you want. 

If price is your primary consideration, go with the property with the lowest acquisition cost — including buying, building, repairing, financing, and closing costs.

Note that construction financing costs more than conventional mortgages. However, there are many other considerations in addition to the cost.

You can avoid additional construction loan financing expenses when buying a spec home and getting a traditional mortgage.

Buying a Home: Pros and Cons

Buying a home is the more popular option. That mainly comes down to three advantages:

Timing

It usually takes 30 to 60 days to find, finance, and purchase a home, while building a house takes six to 18 months. People who face deadlines — such as moving for a new job or moving in time to get their children into new schools — don’t always want to rent during the building process, and they don’t relish the “opportunity” to move twice. 

More Choice in Neighborhoods

If you want an established neighborhood with vintage homes and mature landscaping, there may not be empty lots waiting for someone to build. And if you want the community with the best schools, there may not be lots available at all.

Often, new areas with building opportunities are on the outskirts or suburbs, perhaps not your ideal. Your best bet might be a well-built existing house or a fixer-upper if you live with construction chaos for a few months.

Stretch out Costs

You can usually find a cheaper existing home than you’d spend for a brand-new house. It might be more manageable to buy an affordable house and then upgrade it as money comes in.

On the other hand, older homes can have obsolete systems and be energy hogs. And you might not want to look at 1990s-era bleached wood and brass finishes until you can get around to remodeling.

Building a Home: Pros and Cons

Customization

The most popular reason for building a home instead of buying is the ability to get exactly what you want — whether that’s energy efficiency, smart home features, or very specific items such as a dog washing room, home theater, or stone pizza oven. 

Safety 

Another major benefit of building a new home is that your systems are new, up to code, and unlikely to fail. Maintenance costs are much lower for a new home. You’ll also be able to take advantage of manufacturer and builder warranties.

While with a resale home, you’re pretty much stuck with repairs once you close, and the odds of something malfunctioning are much higher. 

Cost

Regarding which option costs more, it depends on the project, local housing markets, and labor costs. Note that if you purchase a newly constructed home from a builder/developer, the profit (19% gross and 7% net, according to the NAHB) goes to the builder.

While if you contract for a custom build, you split the profit with the builder and typically gain some equity instantly. And you can cut costs substantially with “creative” building plans — tiny houses, modular homes, and kit homes. 

These are cheaper housing options worth looking into.

You should commission an appraisal for your property — as-is and as completed. Then you can compare the expected build cost with the projected home value and see if building is cost-effective. 

Do’s and Don’ts for Builders and Buyers

Understand what you’re getting in a home. Whether you’re buying or building, make sure everything you need is in your contract. If you want the high-tech refrigerator and hot tub on the deck, make sure the sellers aren’t planning to take those items with them. 

Homebuilders often don’t include things you might consider basics — paved driveway, landscaping, sodding, eavestroughs, or air conditioning, for instance. If you’re considering a newly built home, make sure the features you require are included or price them out to determine if your budget is reasonable. 

Understand that things will take longer than expected and do everything possible to speed things up. Line up your financing and get your mortgage pre-approval before hunting for property.

If you’re effecting a 1031 exchange (legal in all states from California to New York), get your paperwork in order — you normally have 180 days to complete the tax-deferred exchange or face stiff penalties. 

Find a few reputable builders and get bids from each. Builders normally won’t pull permits and start until they have a signed, binding contract and your deposit.

Be certain that any builder you consider is approved by your mortgage lender — that helps you avoid shaky contractors. Expect construction to take six to 18 months, and understand that every change you request once underway will cost you money and add time. 

Splitting the Difference: Buy a Fixer-Upper

Fixer-uppers can provide the best of both worlds. You can find a less-than-perfect home in your dream neighborhood. Purchase your rundown house at a discount and then hire a builder to upgrade the systems, increase energy efficiency, and make it safer and more attractive.

You can finance the purchase and rehab with a single loan. Pay attention to the improved value of the property on your home appraisal. That will tell you if it’s cost-effective to buy used and improve rather than to purchase new.

Make Friends With a Good Agent

Building sites that meet your needs, perfect properties in your chosen neighborhoods, and potentially profitable fixer-uppers don’t stick around long on real estate markets. 

To get an advantage in your search, find a knowledgeable, reputable agent who can quickly locate what you need and perhaps come up with creative solutions. Not using a good agent puts you at a disadvantage in today’s hotter markets.

Don’t Do These Things When Buying a House

Are you planning to make your first home purchase? When you decide to buy a home, it is easy to get swept away by emotion. The idea of having your own place, where you can choose what to do whenever you want, is empowering.

However, don’t let the emotion take control and allow you to make a decision that you may regret.

Here is a list of the top things NOT to do when house hunting to help you avoid major pitfalls.

Follow the advice along with asking smart home buying questions, and you should find yourself in a much better position when all is said and done.

Make Sure to Know What you DO NOT WANT as Well as What You Need

People often fall into the trap of buying a home based on one or two things, such as just the price or maybe the location, without considering the house in context.

It is important to avoid homes that have the things you know for sure you do not want.

For example, if you hate yard work and your outdoor tool arsenal consists of a wide-brimmed hat and sunglasses, buying a home with a large yard and numerous shrubs would likely be a bad idea for you.

Along those same lines, if you are married with two young children and another child on the way, buying a 2-bedroom house or even a 3-bedroom house may not be the best option for you. Your family is growing and will need a lot of space in the coming years.

Before looking at homes, decide on what you must have in a place. These should be non-negotiable things. Then make a list of things you would like to have but could live without.

These 2 lists of features should help you narrow down your selections.

Do Not Look Too Quickly at a Home

Whether it is viewing an Open House or making an appointment with an agent to look at a home, you should take your time.

Walk through the home to identify the major sections. Take time to review the master bedroom, the bathroom, and the closets. These areas can cause quite a bit of stress if they are not large enough or have a bad design.

Stand in the living room and picture your belongings and your day-to-day activities in that space. Walk to the kitchen and take notes as to the size of the area as well as how things are laid out.

Step outside and explore the yard, both front and back. Can you see yourself happily living in this spot? Are there any major problems that would make you miserable if you had this view or regularly heard these noises?

This will be your home for at least a few years. Make sure you are happy now with the place before you ever hang the first picture.

Don’t Get Opinions from Too Many People

It is always a good idea to get input from people that have purchased a home. Whether it is a friend or relative or a co-worker, learning from other people’s home buying mistakes is always a wise move.

However, nobody is going to be exactly like you. Each person you speak to will have their likes, dislikes, and opinions.

If you are married with a small child, the opinions of a permanent bachelor may not line up with your house goals. Ask for input but take the advice with a grain of salt as well.

It is Highly Unlikely You Will Find a Perfect Home

If you are not building the home of your dreams with a contractor, every home you view will likely have at least one or two things you wish to change.

It could be something small, like wanting a double vanity in the master bedroom. Or it could be something vital, like that extra bedroom you need for your family’s size.

As mentioned before, using your list of crucial things for your needs will help you decide on the right house.

Don’t Overlook the Neighborhood

You cannot pick your family, but you can pick your new neighborhood.

You must spend a bit of time getting familiar with the place that you will sleep every night.

Researching the neighborhood is a crucial part of the home buying process.

Are most of the homes tidy and well kept, or do you see many messy properties?

Do you see homes owned by people in a similar life stage as you, or does there appear to be a big age gap?

How loud is the closest neighbor? Can you hear their tv, or worse, can you hear them arguing?

All of this information is something you will have to gather on your own. No smartphone app or website shows the best neighborhoods based on a few specific requirements.

Trying to Find a Home Without a Real Estate Agent

A real estate agent can be your most valuable asset when looking for a home.

First of all, they can review your list of needs and weed out homes that simply won’t match what you expect in your new place. They can also locate all the homes that will match your needs within a certain area not to waste time looking at homes in the wrong location.

Mort importantly, they are connected to new listings. When a home becomes available for sale, the agent can notify you and give you a chance to see the home while the sellers are anxious to move the property.

Going House Shopping Before Talking to a Mortgage Lender

We saved the most important step for last in hopes that it will stick with you.

The biggest mistake you will make in shopping for a house is reviewing homes without first talking to your mortgage lender.

You need to know how much home you can afford, plain and simple. Your lender can review your finances, explain your mortgage program options, and provide you with a pre-approval letter.

The pre-approval lets real estate agents know that you are serious about purchasing a house and that your offer can be taken seriously.

It also provides more info for the real estate agent when researching which homes are right for your needs.

Final Thoughts On Things To Avoid When House Hunting

Using these tips should help get you in the right frame of mind when looking at homes. It should also prepare you for the upcoming process and help you to avoid some issues.

Once you’re done with your purchase you can focus on making some nice improvements to bump up the value.

Hopefully, you now have a much better understanding of what not to do when house hunting.

What to Know About Buying a Waterfront Home

Are you considering buying a waterfront property? Waterfront homes are highly desirable and with good reason. Living on the waterfront is something that many people desire.

You may imagine waking up listening to the sound of the waves crashing, sitting on your porch drinking a cup of coffee at the beginning of the day. Waterfront properties bring an ambiance that other homes do not have.

You have the windows open in your home, enjoying the cool breeze blowing through your home. This sounds like a dream for many! Waterfront homes are considered luxury homes.

It is possible to enjoy living in waterfront homes on a budget with a little planning. If you already have your ocean or lake house and want to save on expenses, you will find some tips to help you live on a budget.

Cover Everything When Living On The Water

There can be more costs associated with living on the waterfront. If you live on the oceanfront or anywhere near the beach, the salt air can be very corrosive. There are some budget-saving hacks to consider when living on the water.

You may find that there is much more moisture on your outdoor patio or deck. This can result in the growth of mildew and sometimes even mold. You will need to maintain this, and this is something that you can do yourself by power spraying the deck or patio.

Protect your outdoor furniture. There are conditioners for metal furniture that can be sprayed on it to protect it from the sunshine and air.

Cover the outdoor furniture during the winter months, and if there are removable cushions, bring them inside, or store them in a storage box. This will help you to save on replacing your outdoor furniture every year.

Make sure to cover your barbeque throughout the year as well. The salt air will rust barbeques fairly quickly. It is a good idea to cover it up every time you utilize it.

Be sure to address any deferred maintenance on your home. There are many DIY tips for addressing deferred maintenance that will save a bunch of money.

Choose Economic Aquatic Sports when Living in Waterfront Homes

Depending on where you find your waterfront property will dictate what types of aquatic activities you can have. If the area allows boating, be sure to investigate what types of boats and sizes are allowed.

Having a boat that remains in the water can be expensive and require a lot of maintenance. The bottom of the boat needs to be cleaned regularly, and if there is wood on the boat, that will require maintenance. Anything that requires maintenance costs money.

Some great activities on the waterfront that are more economical include kayaking which might be initially expensive. However, you may be able to find a kayak on Craigs List or any other reseller site! Most kayaks are made of plastic and can be taken out of the water fairly easily, and don’t require maintenance.

Other activities to consider that are more cost-effective include stand-up paddleboarding. Again, this may be expensive initially, but once you have the board and your paddle, you are good to go. And it is a great workout!

Consider Buying a Home Located on an Interior Lot

Consider buying a home on an interior lot but near the water. Ensure that you still have access to the water. An interior lot near the water can literally save you hundreds of thousands of dollars. You may still end up with an amazing view.

Homes that are located on the second row from the beach or the lake are still valuable given the close proximity to the water. And you can still get the benefits of living near the water.

Consider Buying a Waterfront Home That is a Fixer-Upper

Homes that have deferred maintenance or are fixer-uppers may be a great way to buy waterfront homes at a lower price. However, when buying a fixer-upper, you have to plan ahead on how much your renovations will cost. This is true of any home in bad condition.

This needs to be factored in if you are considering purchasing a home that is a fixer-upper. And there are some excellent tips to avoid overspending on a fixer-upper that will help you save some money.

Purchase a Vacant Lot For a Waterfront Home

Consider looking a little out of the area that is trending and hot right now. Look a little further away from where the prices are not that inflated.  Purchasing a vacant lot allows you to have your waterfront property, and then you have the option of building a home.

Before you begin the home building process, you may need to obtain a construction loan. Ideally, you will be able to build the home of your dreams but before you get it designed, be sure to create a needs vs. wants list!

If you are buying a resale, there will be many mortgage programs to choose from as well.

There are many questions to ask when building new construction. If you have ever done a remodel or renovation to your home, it is exciting but also stressful.

Any construction project will likely have delays in the original time period, which can cost money. It is wise to plan ahead and know what to expect with new construction. The reality is that whenever you embark upon new constructions, things may not go perfectly as you have planned.

Inexpensive Landscaping

Generally speaking, the lots that are located on or near the water are smaller in general. So there is not as much area to the landscape.

There are generally planters along the side of your home and front and the rear. There are many creative landscaping ideas that can be done on a budget. You can also use colored pots planted with color to accessorize the home. Planting the area yourself is a great way to save money while adding to the home.

Final Thoughts about Waterfront Homes

You have some options when buying waterfront homes, and be sure to plan ahead. Working with a top Realtor will help you to identify the best areas to buy waterfront homes at a more affordable price.

By being more proactive with the maintenance of the home will also help to save money on a regular basis. It takes a little planning, but it can be done.

What to Know When Buying a Home For The First Time

Buying a home for the first time can be daunting. Before you put down your hard-earned deposit and sign away the next 15-20 years of your lives, there are a few points to clarify, and this is the time to ask the questions.

When you are spending hundreds of thousands of dollars, there are no questions that are too trivial. If you have a real estate agent, make sure you lean on them for advice. If they are worth their salt, they will be someone to lean on for all the things you’re unsure of.

Having a first-time home buying guide is always useful. You can also seek assistance from family and friends that have already been through the process.

Consider a few of the following points as a first time home buyer. These are great questions to ask yourself as you journey towards owning your first house.

• How far will you be from work, and how good is the public transport?
• How long does the commute take?
• Do you want to live near shops, schools, hospitals, cafes, and parks?
• Will you be near enough to Mom and Dad so you can drop in for dinner?
• If you are pregnant, how near is your hospital?
• Can the kids walk to school? Homes in sought after school districts always sell really well! So even if you are not having children consider this fact from a resale perspective.
• You want a neighborhood with a good community appeal, where you have a large enough population to support cafes and diverse restaurants, and possibly a good pizza/sub shop.
• Do you have a dog? You will want an off-leash dog park, to take Fido for a run, and a local vet.
• You are busy, so look for a home requiring minimal renovation. Major renovations are not affordable when you are in your first home. It would help if you got a bit more equity first. Having said that, even minor renovations require a handy hardware store nearby.
• Try not to exceed your budget. The lender will look for some leeway in the budget, so when you choose a home, make sure, based on your combined salaries, that you can afford it. You want to keep your housing costs, including insurances, between 25% and 28% of your monthly take-home pay. This is a bit easier for a couple than for a single buyer.
• Are you eligible for any first home buyer grants or incentives? The United States Department of Housing and Urban Development (HUD) also provides grants to first home buyers. If you apply early in the new financial year, you may be eligible to receive one, important to apply early as the program has limited funds, is soon exhausted, and is not refunded until the following fiscal year. You just may qualify!

Questions to Ask and Things to Do Before Buying a Home

Get a Mortgage Preapproval

Once you have everything in place, try to get your mortgage preapproval in writing from a well-known lender. It is always a good idea to comparison shop a few lenders as well before settling on one.

Be prepared to have your financial information (proof of employment and income) verified for written preapprovals.

These last for about three months and you are then ‘buyer ready.’

Make Sure You Have a Professional Home Inspection.

Have a look to be sure that the roof, foundation, HVAC systems, flooring, and walls are all in good order. Make sure you have a house inspection before closure done by a well respected local professional.

You really want to know before you put the escrow deposit down if there is anything to be done. Home inspections are also a great learning exercise about the property you are purchasing.

The home inspector will go over all the systems, especially the furnace, air-conditioning, and electrical. They will check the basement for dampness and mold. A good inspector will also have a keen eye for evidence of termites, other insects, and rodents.

Getting a home inspection done is especially important when you are purchasing a fixer-upper home.

Is The Home Low Lying?

Is the house near a river or a low lying flood plain. You don’t want to be paying for flood insurance as it is costly. If the area is a flood zone, it might be why the home is cheaper. Once a house is flooded, it is never the same again. So, avoid any possible flood area.

Is The House on a Busy or Noisy Road?

Houses on major roads are usually less expensive. If you decide to purchase on a major road, make sure that the house has insulation, as a major road can be very noisy and polluting. Avoid big thoroughfares if you can, because it won’t have a good resale value.

Think About Using a Buyer’s Agent?

If you are having difficulty sifting through the choices available, you may decide to hire a buyer’s agent. It likely won’t cost you anything as real estate commissions are typically paid by sellers.

A great buyer’s agent will be in your corner working hard to find you the right home. The best agents will not offer any pressure for you to purchase. If you are a busy professional, having someone scouring the multiple listing service for you every day can be a godsend.

Make an Offer Stick

Start attending open houses to get a feel for the market. Are real estate values rising, falling, or stable. If home prices are falling, that will be good news for you. It might be possible to find a house you previously thought to be unaffordable.

When you find the home that makes you happy, you’ll want to pounce on it, especially if it is an excellent deal. Get together with your real estate agent and write the offer. Be prepared to have some give and take, which is often the case. Negotiating is something buyers, and sellers do. Try to make it a win-win if you can.

If the seller has already bought elsewhere, you will probably be in the driver’s seat as there will be some urgency to get a deal done.

On the other hand, if you are in a hot seller’s market, be prepared to move quickly. There could be multiple offers and bidding wars. Unfortunately, there will be less flexibility. To get the house you really want, you’re probably going to need to step up to the plate and give the seller their desired terms.

It is vital to be proactive at this stage, as you want to get into a house before your preapprovals expire. The financial markets are very mercurial, and especially in a rising market, conditions change very quickly.

Prepare For Moving

One of the most arduous tasks when buying or selling a home is moving. The move can not only be physically stressful but mentally as well. There are so many things to get done. Did you change your address with the post office? How about getting one of the best moving companies in the area?

Maybe you have found that hiring professional movers will be too expensive and rent a moving truck instead? Lots of folks choose to rent a moving truck from U-Haul because of the convenience and lower cost.

These are all things that should be thought about well in advance. Proper planning goes a long way when buying your first house.

Final Thoughts on Buying a First House

Once you have the finance approved for your new house, it is important to be ready to recognize and grab a good deal when it comes along. Buying a home for the first time can be a full time and stressful job. You will have a limited amount of time to perform what seems like an endless list of tasks. The good news is, it will soon be over, and you will be in your own home.

Hopefully, you have found some of these first-time homebuyer tips to be useful.