When it comes to determining the value of a property, there are two terms that might come up: market value and appraised value. While they may sound similar, they are actually quite different. Here’s what you need to know:
In short, the difference between appraised value and market value is that appraised value is an objective, professional assessment of a property’s value, while market value is a subjective determination based on what buyers are actually willing to pay for the property. If you’re buying or selling a home, it’s important to understand these distinctions so that you can make informed decisions about pricing and negotiations.
The Basics: Understanding Property Values
Property values refer to the fair market value of a property which can be determined by two types of valuations: appraised value and market value. Both appraised value and market value are important concepts in real estate and understanding the differences between these valuations is crucial when buying or selling a property.
Appraised Value: The Role of a Qualified Appraiser
Appraised value is the monetary value given to a property by a qualified appraiser for real estate. The appraiser determines the value of the property based on certain factors such as location, size, age, condition of the property, and recent sales of comparable properties. The appraiser uses various methods to arrive at a fair market value, such as the sales comparison approach, cost approach, and income capitalization approach.
The role of an appraiser is to provide an unbiased and objective assessment of the value of a property. It is essential to understand that an appraised value is a professional estimate, substantiated by facts and data, that a qualified appraiser presents as a fee appraiser. Appraisals are most commonly used during a property sale or purchase, refinancing of a mortgage, or for settlement of an estate.
Market Value: The Importance of Buyer Perceptions
Market value, on the other hand, is determined by buyers who evaluate real estate assets according to what they believe the value of a property ought to be, and most importantly, the amount they’re willing to pay for it. Market value is often based on current conditions of the real estate market, location, desirability, and economic trends in the area.
The market value of a property can be subjective and can vary among buyers. It is not an exact science and can fluctuate based on current trends or perceived value. The market value is usually established through an inspection of the property, as well as a comparative market analysis. It is a useful tool for setting a list price for the property, but that price may not necessarily be the final sale price.
What Factors Influence Appraised Value?
Several factors influence the value of a property as determined by an appraiser. Some of these factors include:
- Age and condition of the property
- Size and number of rooms
- Recent sale of comparable properties in the area
- Market trends and economic conditions
It is essential to note that each appraisal is different, and while these factors are considered, the appraiser may also take into account additional or unique features of the property that may affect its value.
What Factors Influence Market Value?
Market value is more subjective and is influenced by buyer perceptions and trends in the local real estate market. Some of the factors that influence market value are:
- Location, including proximity to amenities and access to transportation
- Supply and demand for homes in the area
- Overall condition of the property
- Recent home sales in the area
- Interest rates and economic conditions
As mentioned earlier, the market value of a property can fluctuate based on current trends and buyer perceptions. Hence, it is essential to adjust the list price of a property based on the feedback from potential buyers and the real estate market trends.
Pros and Cons of Relying on Appraised Value
- Appraisals are conducted by professionals who have expertise in real estate valuation. This helps ensure that the price set for a property is based on solid data and market trends, and that the property is valued accurately
- Appraised value is typically viewed as an objective and unbiased opinion by buyers in a real estate transaction
- During a refinance or new mortgage negotiation, an appraised value can determine the amount of equity in the home and help ensure that the homeowner is not overpaying for their mortgage
- Appraised value may not necessarily reflect the price that a buyer is willing to pay for the property
- The cost of an appraisal can be a significant expense for a homeowner, which may not always be worth the cost
- Appraisal values may be too conservative and may not take into account factors such as unique features of the property, which could affect its perceived market value
Pros and Cons of Relying on Market Value
- Market value is based on current market trends and buyer perceptions, which are factors that affect the actual sale of the property
- A property that is priced according to its market value is more likely to attract potential buyers and be sold quicker
- List prices that follow, the present market value will bring the highest possible offer compared to a price influenced by some inflexible criteria such as an appraisal.
- Market value can be volatile and can fluctuate based on changing market trends
- If buyers perceive the market value to be too high, it may result in difficulty selling the property, or require a price reduction that could hurt the seller’s bottom line
- Market value can be subjective and may not always reflect the true value of the property
In conclusion, both appraised value and market value have their place in real estate. They are not interchangeable concepts, but rather two distinct valuations that can be used in different situations and provide different perspectives on the value of a property. Ultimately, it is up to the buyer and seller to determine which valuation more accurately reflects the value of the property.