Property Valuation
A Utah home is listed at $400,000 but the appraiser determines the value is $375,000. The appraisal gap is:
A$25,000✓ Correct
B$375,000
C$400,000
D$12,500
Explanation
The appraisal gap is the difference between the agreed purchase price and the appraised value: $400,000 − $375,000 = $25,000.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Option ContractA contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
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