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If you’re familiar with real estate, you’ve likely heard about the appraised value versus the market value of a home. It can be easy to assume that those are the same or at least similar. However, there are distinct differences to be aware of. The homebuying process is rarely simple, but understanding the difference can make it easier.
What Is Appraised Value?
The appraisal value of a property is determined by a professional real estate appraiser based on the condition of the property and current market conditions. It is an objective assessment that only reflects a snapshot of the time it was conducted.
Why Is Appraised Value Important?
Appraised values are important because they are essential if you’re using a mortgage. The mortgage lender will select and order an appraisal of the property before you can close on the mortgage. The appraisal value lets the lender know the perceived worth of the home. The mortgage lender will use this to determine the amount it is willing to offer in a mortgage loan.
How to Determine the Appraised Value of a Home
The appraised value of a home will be determined by a licensed real estate appraiser. In most cases, the lender will choose and arrange the home appraisal. However, as the homebuyer, you are responsible for paying the appraisal fee.
How to Boost the Appraised Value of a Home
As a homebuyer, you won’t be able to increase the appraised value of a home you are in the process of purchasing. Homeowners can make some changes ahead of a sale to increase the appraised value, which can also increase the home’s sale price. Some examples include upgrading appliances and HVAC equipment or adding a fence or deck to the property.
What Is Market Value?
Market value is determined by potential buyers in a real estate market. Unlike an appraised value, there is no professional opinion dictating the market value of a property. The market value is simply what potential homebuyers are willing to pay for the home. It can be impacted by several factors, including the number of homes available locally, the neighborhood and the condition of the home and property.
Why Is Market Value Important?
The market value of a property is important because it can significantly impact the amount you’ll have to offer on a home as a potential buyer. To get a sense of a home’s market value, ask your real estate agent about the sale price of similar homes in the neighborhood. It’s important to carefully consider the home’s market value compared to your budget. It’s also crucial to understand that the market value may be different than the home’s appraised value.
How to Determine the Market Value of a Home
Several factors can impact the market value of a home. One is the neighborhood and school district the home is located in. Another is the curb appeal of the home — the home’s exterior style and the condition of the property can greatly impact the curb appeal. You also need to consider the components of the home, including the square footage, how many bedrooms and bathrooms there are and the quality of the appliances and systems.
One of the most important factors — and the least controllable one — is the current real estate market. If there are more buyers than there are homes available, the market value of a home can skyrocket. This is simply because of supply and demand. Some people may be willing to pay more for a home regardless of the appraised value.
If you’re working with a real estate agent, they will be able to put together a list of recent sales of similar homes in the same neighborhood. This can help you determine the potential market value of the home you are interested in. It will also help you decide how much to offer for a home.
When to Use Market Value
Understanding the market value of a home can only benefit you as a homebuyer. By understanding the market value, you can get an idea of what your competitors may be offering on the home. It can also help you determine whether the home might be out of your budget.
If you’re planning to take out a home loan, you should be mindful of the market value versus the appraised value. If you make an offer on the home that exceeds the appraised value and you can’t pay the difference, you may be unable to close on the home. This would result in you going back to the beginning. The home would go back on the market, and you’d have to start searching again.
Next Steps in Determining Value
You don’t have to go through this alone. After you’ve made an offer and the seller has accepted it, your lender will help you through the rest. It will assign an appraiser and let you know what the appraised value of the home is and the amount that they can offer you. As a homebuyer, your job is to work with a real estate agent that you trust. Your agent can help you determine what a fair offer is on any home based on the market value. Although they cannot tell you exactly what the appraised value will be, their knowledge of the market is invaluable.
Frequently Asked Questions
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No, the appraisal value is not the same as the market value. In some cases, they could be the same or very close, but there is no guarantee.
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In many cases, yes, as long as the homebuyer was strategic in their offer.
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This is a personal decision. Generally speaking, it may not be the best financial move. However, if you can afford it and feel comfortable with taking the risk of paying more, you can choose to do so.
