Appraised vs. Market Value: What’s the Difference?

Whether you’re buying or selling a home, there’s a good chance you’re running into some terms that confuse you. You might be wondering what the difference is between the appraised value and the market value of a home. In this guide, we’ll discuss home appraisal value versus market value, what purpose each one serves, and why both of them are useful in a real estate transaction.

What’s the Difference Between Home Appraisal Value vs. Market Value?

A home’s appraised value is the actual value of a piece of land and the improvements based on the professional opinion of a home appraiser. A mortgage lender will use the appraised value to ensure its investment is protected and to determine loan-to-value (LTV) ratios for the buyer. Market value is the expected sale price of a property based on the opinion of a local real estate agent. The appraised value and market value can and often do differ.

Appraised Value vs. Market Value: Differences in Determination

There are a few key differences between appraised value and market value related to the professional that determines them and the method they use.

Professional Opinion

Both appraised value and market value are the opinions of professionals, but the two figures come from different experts. A local home appraiser, often one that the mortgage lender hires, determines the appraised value. A real estate agent, whom either the buyer or seller can hire, determines the market value.

Method

These two home valuations differ most in the method the professional uses to come up with value.

An appraiser will assess the inherent land value of the property, look at comparable sales in the area, and look at many aspects of the home to figure out what the property is worth. Some other things they’ll often use in their home appraisal checklists include the following:

• The number of bedrooms

• The number of bathrooms

• The functionality of the floor plan

• Proximity to schools, commercial property, railroad tracks, etc.

• The quality and condition of building materials

• Plot size and shape

When a real estate agent determines the market value of a property, they’ll usually only consider comparable listings and sales in the vicinity. They might make adjustments based on functional obsolescences or property condition, but they’re mostly coming up with an opinion of what the property will sell for, whereas an appraiser uses a more scientific approach to determining value.

Timeline

A real estate agent will first walk through your property to get a sense of the condition but then determine the value remotely by looking at comparable listings and sales in your area. The walkthrough could just take a few minutes.

An appraiser will take more time to assess every aspect of your property. This type of home inspection can take an hour or two, and getting an appraisal can take a week or more.

Appraised Value vs. Market Value: Differences in Usefulness

There are also a few key differences in how you can use the two types of property value estimates.

Mortgage Lending

Most mortgage lenders will require an appraised value to determine whether or not they’ll approve the loan. They use the appraised value to confirm that they’re not exposing themselves to too much risk—for example, lending far more than the property is actually worth—and also to determine LTV values to remain in compliance and insulate themselves further.

Mortgage lenders will never use the market value as the value of a home, as the market value and appraised value can differ widely, especially in particularly hot markets, where buyers may be willing to overpay for a home.

Deal Negotiation

Market value might help you determine how much you should list your property for and accept once you get an offer, but neither side will really be able to use it as leverage in negotiation. Appraised value, on the other hand, can play an important role in real estate negotiations.

If the appraised value comes in below the offer price, a buyer may renegotiate and lower their offer to avoid overpaying for the home. If the appraised value comes in above the offer price, a seller might use it as leverage to push the sale price higher. However, the effectiveness of the leverage you can gain from an appraised value depends on how hot the local market is.

Sale Price

The market value determined by the real estate agent may affect what a seller is willing to accept for the property, but the appraised value can prevent a sale from going through if it differs too much from the offer price.

For example, if the appraised value comes in well above the offer price, the buyer’s lender may decline to lend against the property because its investment is exposed to too much risk. The lender may require the buyer to pay more out of pocket for the home to get the loan approved, which could cause the deal to fizzle.

Who Orders the Valuation

Finally, the two valuations differ in who orders them. If a seller hires an agent, the agent will always provide a market value to determine where they should list the property and what offers they should entertain. A buyer often won’t ask for a market value, although their agent’s opinion may influence where their offer stands.

Both sellers and buyers can order appraisals to help with negotiations, but the buyer, provided they’re financing the property, will always need to pay for a home appraisal. The appraisal is a requirement for lenders to lend against a property.