What is the Difference Between Market Value and Appraisal Value?

What is the Difference Between Market Value and Appraisal Value?

When you think about how much your home is worth, you may be looking at its market value. And while this is a good thing to know, your home’s appraisal value is just as important because it’s what lenders will use to approve or decline a home loan. These two numbers are not only different in how they’re used, but they also differ in how they’re determined. An appraisal value is determined by a specific real estate professional whose job is to make an unbiased assessment of a home’s value, and it’s often used by lenders to minimize their risk while approving a loan.

Lenders will only issue a loan up to the home’s appraisal value. And if this value is lower than the actual offer, the buyer and the seller can use certain “concessions” to keep the deal from falling through. Market value, on the other hand, is driven by consumers. It’s a price that is often agreed upon between the buyer and seller, which is what the buyer is willing to pay and what the seller is willing to accept.

How Appraisal Value is Determined

Your home’s appraisal value is determined by an appraiser, who is a real estate professional that has been licensed by the state. This person performs an appraisal at the request of a financial institution (such as a bank or credit union) through which you hope to get a mortgage loan, and it’s determination is based on recent sale prices of other properties in the area along with other factors. Appraisal values can not only influence the home’s sale price but can also determine how much of a mortgage for which you can be approved. It also acts as a safeguard against any unnecessary risk, because it can keep banks from issuing loans for more than what the home is worth.

The person buying the home will have to pay for the appraisal as part of the loan application process. The buyer will approach a lender to get a mortgage, who will ask a licensed professional to look at all the property details (both interior and exterior) so an appraisal value can be determined. This is different from your home’s assessed value, which is a relative measure that is used to determine how much taxes the government will levy on that particular property. As a rule, the appraisal value is based on a more thorough analysis and is part of the due diligence process for mortgage underwriting.

The appraiser will look at a variety of external and internal factors in determining the value of your home, which can include the following:

• Comparable Listings.
• Market Trends.
• Location.
• Curb Appeal.
• Square Footage.
• Number of Bedrooms & Bathrooms.
• Code Compliance.
• Interior Condition.

Many of these factors (such as location, comparable listings, and market trends) are beyond your control, but other things (such as the home’s interior condition) can be improved upon.

How Market Value is Determined

Unlike appraisal value, market value is more subjective. It’s what buyers are willing to pay for a home and what sellers are willing to list it for. This can be determined by looking at several factors, which can include:

• Comparable listings of similar homes in the area.
• Features and condition of the property.
• Current real estate trends.

When you hear the term “market value,” it often refers to the amount that a seller can expect to get for the home. Real estate agents will typically do a market analysis by comparing it to other homes that have been recently sold or listed, so they can come up with a competitive price. They will have experience in estimating the most likely price for which the home can be sold, but they may not be able to affect the final sale price. The seller can ignore the advice of the real estate agent and list the home for any price they want. The true market value of a home will often remain unknown until the deal actually closes. And like most traditional markets, buyers and sellers can negotiate a deal when the need arises.

If you’re looking for a real estate agent in Houston that can help you with buying or selling a home, be sure to get in touch with Danielle Navas. As a Realtor serving the Greater Houston Area, Danielle is well versed in generating market analysis that makes sense for the seller. You can find Danielle on the Business Board by clicking here.

Home owners must be vigilant in making sure their property values are assessed correctly every year. There are many companies who can assist you with these efforts. One of those companies can be found on the Business Board with Lone Star Property Tax by clicking here. 

Article written by John Grgurich