Appraised Value vs. Market Value: Home Edition

When it comes to selling your home, one of the most important aspects to understand is how appraised value and market value differ, and why these distinctions matter. Whether you’re setting a price for your home or evaluating offers, knowing how these two values are determined and how they affect your sale is crucial to making informed decisions.

In this blog, we’ll break down the differences between appraised value and market value, and why it’s essential for sellers to understand both to price their homes effectively.

1. What is Market Value?

Market value refers to the price a home will likely sell for based on the current real estate market conditions. It’s essentially what a buyer is willing to pay and what the seller is willing to accept. While sellers set the price, it’s the buyer who determines the value by agreeing to pay that price.

Market value is influenced by several factors, including:

Comparable properties (or “comps”)—recent sales of similar homes in the area
Location—neighborhood desirability, proximity to schools, amenities, etc.
Condition—well-maintained homes will typically fetch a higher price
Market conditions—whether it’s a buyer’s or seller’s market

Your agent will run a comparative market analysis (CMA) to help determine the market range for your property based on recent sales and current market trends. This range helps identify a fair market value, which is the price point most likely to attract offers in the current market.

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2. What is Appraised Value?

An appraised value is a professional estimate of a home’s worth based on an independent appraisal. The appraisal is conducted by a licensed appraiser, often required by the lender when the buyer is financing the home. The appraiser evaluates the property based on several factors, including its condition, location, size, and the sales prices of comparable properties.

The key takeaway here is that the appraised value is not the same as market value. While market value is driven by buyer demand and market conditions, appraised value is based on more objective criteria and is primarily used to ensure that the lender’s investment is protected.

In most cases, the appraised value can come in higher, lower, or the same as the listing price. If the appraisal comes in lower than expected, this can create challenges for both the buyer and seller. Buyers may need to bring in additional funds to cover the difference, or they might choose to negotiate the price.

3. Why Does the Appraised Value Matter?

An appraised value becomes critical when the buyer is obtaining a mortgage loan. The bank home appraisal is what the lender will use to determine how much money they are willing to lend the buyer. If the appraised value is lower than the purchase price, the lender will typically only approve the loan for the lower appraised value. This is often where a gap can occur, leading to negotiations between the buyer and seller to either lower the price or for the buyer to pay the difference out-of-pocket.

For sellers, the appraised value can also impact how quickly a home sells. If the appraised value is too low, it may create hesitation in the buyer or cause the deal to fall through, especially in a competitive market.

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4. Fair Market Value vs. Appraised Value

It’s important to note the distinction between fair market value and appraised value:

Fair market value is the price the property could sell for in an open market, where both the buyer and seller act in their own best interests. It’s the value established based on comparable sales and market conditions.
Appraised value, on the other hand, is determined by a third-party appraiser and is often used by lenders to assess the risk of the loan. It’s a more formal valuation of the property, and it is generally based on objective standards, unlike market value, which is more subjective and market driven.

5. What is Assessed Value?

You may also hear the term assessed value when discussing home values, but it’s not the same as market or appraised value. Assessed value is used by local governments to determine property taxes. It’s often calculated as a percentage of the market value and can vary by jurisdiction. In many cases, the assessed value is lower than the actual market value, which is why it’s not used to determine how much a home is worth on the market.

6. How to Find Assessed Value of a Property

If you’re interested in learning the assessed value of a property, this information is generally available through the local county assessor’s office. In Charlotte, NC, for instance, you can look up property records online or contact the Mecklenburg County Assessor’s Office for specifics. This value is primarily used for tax purposes and doesn’t necessarily reflect what the home will sell for in the current market.

Is it better to buy a new home before selling yours? Read this post for everything you need to know about buying vs. selling first.

7. Why Understanding Market Value and Appraised Value Matters for Sellers

For sellers, it’s crucial to understand both the market value and the appraised value of their home, as these factors play a significant role in the sale. Here’s why:

Pricing: Setting the right price is key. If the price is too high relative to the market value, buyers may hesitate, and the home might sit on the market longer than necessary. On the other hand, pricing it too low may result in leaving money on the table.
Buyer Confidence: If a buyer’s appraisal comes in lower than the asking price, it could cause issues with securing financing, especially in a competitive market. Having a competitive market value helps avoid this and keeps the sale on track.
Negotiation: Understanding the difference between the appraised value and market value can help in negotiations. If the appraisal comes in low, being prepared to address this issue in advance can smooth over potential hiccups.

Conclusion: Understanding the Difference Between Appraised Value and Market Value

The appraised value and market value are two distinct concepts, but both play a key role in selling your home. Sellers should price their homes based on market value, but it’s equally important to understand the appraised value and how it can affect the sale process, particularly if the buyer is obtaining financing. By working with a real estate agent to establish the right pricing strategy and preparing your home for a successful sale, you can ensure that both market value and appraised value align for the best outcome.

If you have any questions about the market value or appraised value of your home, feel free to reach out. I can help guide you through the process and ensure you make informed decisions every step of the way.