Appraised Value vs Market Value

Market value is the price a buyer is willing to pay for a property, while the appraised value is an objective estimate of a property’s worth as determined by a licensed appraiser. Market value is typically more important for homebuyers, while the appraised value is more important to lenders who are financing the home purchase.

How Is Market Value Determined?

A home’s market value is constantly fluctuating because it’s derived from current demand and supply conditions. The market value of a property isn’t uniform across a metro area. For example, two 1,700 sq. ft., three-bedroom, two-bath homes may have wildly different market values depending on the properties’ condition, features, location and the tastes of local buyers.

Interest rates, local housing trends and even tangentially related socioeconomic factors like employment or crime rates influence the market value of a property. There’s also a significant subjective component to valuation. Emotion, competition among home shoppers or a buyer’s sense of urgency may drive a home’s price above the appraised value.

How Is Appraised Value Determined?

There are a few key differences between a licensed appraiser’s approach to valuation and the market’s approach. The appraiser’s determination is not affected by a buyer’s urgency, emotions or competition. Instead, they base their determination on:

• Recent sales of comparable properties (comps) in the area
• The property’s physical location, size and features, including renovations and additions
• The value of the land itself, the property’s location and local zoning

Appraisers use standardized criteria to make their determinations. They are trained to avoid subjective observations and should not be considering buyer perceptions when assessing the value of a home.

Why Do Lenders Need a Separate Valuation?

Lenders want to ensure the property’s value supports the amount of money they are lending to the buyer. If the buyer were to default, the property would be sold off by the lender to mitigate their losses. The lender doesn’t want to risk being forced to sell the property at a loss because they lent out more than the home was objectively worth.

Is the Appraised Value Useful for Homebuyers?

Yes, it can be useful for homebuyers to take into consideration appraised value. For example, home shoppers who become embroiled in a bidding war for a property might benefit from considering the appraised value and how much lower it is than the market value they are thinking about paying. Keeping the appraised value in mind when putting in offers may be a useful way for buyers to anchor themselves and avoid overpaying.

Mortgage companies typically aren’t willing to lend more than the appraised value, even if the market value is higher. Because the mortgage amount will be based on the appraised value, not the purchase price, buyers run the risk of having to pay much more out of pocket if they put in offers far above the appraised value.

In a buyer’s market, sellers may be more willing to renegotiate down to the appraised value, while in a seller’s market, buyers may be inclined to finalize the purchase by paying over the appraised value.

Will a Lender Prevent a Buyer from Purchasing a Home Over the Appraised Value?

No, the appraised value is primarily important for the loan amount. However, the buyer may be required to put down more of their own cash to finalize the purchase if they end up putting in a bid that’s far over the appraised value.

Helping Sellers Get the Most Out of Their Home Sale as Quickly as Possible

The 72SOLD home selling process is geared toward creating a sense of urgency by narrowly targeting qualified and interested buyers with effective marketing. The goal is to create bidding wars where multiple buyers are competing for your property, increasing the likelihood of finalizing a sale over the appraised value. Homeowners who are thinking about selling, or those who want to learn more about our home selling process, should fill out the form on our website.