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Appraisal Value vs Market Value: What’s the Difference?


Single family home with white fence and garden

Did you know that you’re required by law to have your home appraised if you want to accept an all-cash offer over $400,000?

This is because an appraisal is a trustworthy, regulated process that helps you determine the fair value of your property. People often grow attached to their home and think it’s worth a lot more than it is. This is why independent evaluations are beneficial before listing your home on the market.

However, the appraised value vs market value debate offers two distinct options for you to get an accurate valuation of your home. This is because these two approaches are slightly different and can end up giving you two different prices.

Interested in learning about the appraisal vs. market value of a home? You’re in the right place. Here’s everything you need to know.

What Is Appraised Value?

In simple terms, an appraisal is a professional opinion of your home’s value. This opinion does give your home a price but results from an unbiased inspection of your entire property. This inspection differs from a traditional home inspection as it also considers external factors that could contribute to the value of your home.

While this process does consider external factors, it does stick to the facts. This means that the basic features of your home play a big role in determining its value. For example, a home with more bathrooms and bedrooms will have a material advantage over a home with less square footage.

Appraisals are formal processes and are conducted by industry professionals. This process is based on strict regulations, allowing financial institutions to trust the final report. This is incredibly important in the financial industry as the appraisal is often used as proof that the home is worth the amount of money you want to borrow against it.

This report proves that if you fail to pay back the loan, the bank can sell the home and recoup the borrowed money. While an appraisal is typically done before a mortgage is secured, it’s not required if the homes are sold in an all-cash purchase or if you’re refinancing with USDA, VA, or FHA loans.

Factors That Influence an Appraisal

The appraisal process is regulated to help gives institutions an accurate opinion of the property value. As mentioned above, the internal features of the home are important, but there are a few external factors to take into consideration as well. Here’s a quick look at the factors influencing a final appraisal.

1. Location

The location of your home plays a massive role in how much its worth. This is the obvious place to start and is generally based on the demand for property in that area. For example, a home in New York City will be more expensive than a home in the middle of the country as there are more people and demand for housing in the city.

2. Square Footage

The basic information about your home is considered during an appraisal. This includes the square footage of your home but also how that square footage is used. In simple terms, the number of bedrooms and bathrooms are listed along with other rooms that you may have.

3. Home Age, Renovations, and Improvements

While your home isn’t inspected for defects, the home’s general state is considered. This includes basic information such as when the home was built and renovated and any notable improvements you may have made. This helps give an accurate view of the quality of the home itself.

What Is Market Value?

The current property market determines the market value of your home at that time. This means that the market value is what a potential buyer is willing to pay for your home. While this can end up being more than the appraised value, it can also be lower.

Just like an appraisal, the market value of your home does consider a few factors. However, the biggest influence is the general property market. This is because the final market value takes the appraisal and comparable sales into consideration.

However, just because the appraisal says that the home is worth $1 million does not force anyone to buy it at that price. If the only offer on that home is $800,000 and it eventually gets sold at that price, the home’s market value ends up being $800,000. If there’s an identical home next door on the market, they would use that $800,000 sale to derive their market value.

Factors That Influence the Market Value

As mentioned above, the market value of a property considers the appraisal along with comparable sales. However, there are a few other factors that go into determining the market value of a home. Here’s a quick look at these factors.

1. Comparable Sales

The most influential factor for the market value of a home is comparable sales. This means that the final sales price of other homes in the area can indicate how much your home is worth. This is a helpful metric as it indicates how much potential buyers are willing to pay for a home that looks like yours.

2. Neighborhood and the Local Market

As with the appraisal, the location of the property is considered. However, the local property market is also a factor, as the market value of a property can be an incredibly volatile price. All it takes is one home selling under market value to drop the value of everyone’s property.

3. Home Size

The home size is taken into account, but not in the same way as an appraisal. This is because the size and features of your home are used to help find comparable sales in the area. In this way, the major influential factor remains comparable sales.

Difference Between Market Value and Appraised Value of a Home

As you can see, the main difference between the market value and the appraised value of a home is the fact that the appraisal is determined by an industry professional. In contrast to this, the market value of a home can shift overnight dependent on comparable sales in the area. In a nutshell, the appraisal is calculated by a professional while the buyers in that market determine the market value.

Which Is More Important?

If you plan to put your home on the market, you will want to get the most accurate valuation of your property. While you may think that this means hiring a professional to appraise your home, the truth is that the market value is often the more accurate figure. This is because the entire property market is influenced heavily by comparable sales.

Both valuations have their pros and cons. While the market value of a property can have massive upside potential, the appraisal is a more strict, factual way of determining your home’s value. This is why banks and financial institutions prefer it.

However, the market value of your home is the better option for those who want to sell their homes fast. This is because you won’t have to wait for a professional to come and make a report for you before listing your home on the market. In addition to this, the market value is often more accurate for buyers, allowing you to sell your home a lot faster.

What To Do If These Values Are Different

As you can see, both of these methods share a ton of influences. Both methods include factors such as the neighborhood and size of the home and take the local property market into account. However, the two methods can produce different prices if the market takes an unexpected turn.

In this case, the market value method is the more accurate option if you’re trying to sell your home. This is because if the appraisal is higher than the market value, you may find it difficult to find a buyer for your home.

Get an Online Valuation

When it comes to the appraised value vs. market value debate, it’s important to understand how both of these figures are calculated. While an appraisal is conducted by an unbiased professional, market value can fluctuate depending on what people are willing to pay for the property. This is why the appraisal value is trusted by financial institutions around the world.

This is why selling your property with iBuyer.com is so easy, as you can get an accurate estimation directly from our website. This gives you an instant valuation, allowing you to sell your home in a fraction of the time.

Wondering what your home’s worth in the current market? Get a free online home valuation!

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