Appraisal value vs. market value

Two separate evaluations for your home, intertwined in the homebuying process

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The terms “appraised value” and “market value” can confuse buyers and sellers. They both refer to evaluations on your property, yet they come from two different sources and impact the homebuying process differently. Whether you’re buying, selling or refinancing, understanding the difference between the terms can make things slightly less confusing.

Key insights

  • A licensed real estate appraiser provides an appraised value, which the lender uses for determining the amount of the mortgage.
  • The current market conditions and buyers determine market value, which is simply how much a buyer is willing to pay for your property.
  • Multiple factors go into determining appraised and market value, both in and out of your control.

What is appraised value?

Appraised value is a property’s market value determined by a licensed, objective real estate appraiser. The appraiser considers multiple factors, including the structure and property itself, plus nearby listings or recent sales. While it may show some indication of what buyers may be willing to pay for your property with the current market conditions, lenders use this information only as part of the mortgage approval process.

Bank appraisals

A bank appraisal specifically refers to an appraisal ordered by your lender. The lender uses this information to determine the value of the property you’re buying, and the information plays a role in the amount the lender is willing to lend.

The appraisal is there as a safeguard for the lender, ensuring it doesn’t extend a loan for more than a property is worth. The mortgage lender typically orders the appraisal either through an appraisal management company or directly with an appraiser, but the borrower covers the cost of the appraisal.

Tax assessments

Tax assessments are another form of evaluating the value of your property, but the tax assessor of the county the property is located in is the one assessing the value. This number will likely be different from the appraised or market value. Tax assessors also look at any permits filed for home improvements to the property, plus recent sales in the area. The assessor uses the data from the assessment to solidify the property tax.

» MORE: What is an appraisal waiver?

What is market value?

Market value is how much your property would sell for when placed on the market. Buyers determine this value, and the home’s appraised value or tax assessment value has no bearing on what buyers are willing to pay in an open market.

“Appraised and market value are intimately intertwined. Appraisal value is primarily for the lender to determine how much credit to extend, but generally does coincide with the current market value. Market value is whatever buyers will pay,” explained Marisa Simonetti, owner of Simonetti Real Estate Team in Minneapolis, Minnesota.

You won’t find an exact formula for calculating market value, but there are some data points that may provide an estimate. You can use the comparable sales located near the property or the cost of replacing the home with today’s construction costs if there aren’t any local comparable sales available. Real estate professionals use market value as a strategy for setting the listing price of a property.

Factors that affect your appraisal value

Appraisers include multiple data points that determine the property’s appraisal value. Ultimately, the appraisers use a wide range of factors, which you may or may not have any control over. Evaluations often include:

  • Home improvements: Any updates to the home, unique features or amenities added over the years can improve the appraised value of your home.
  • Structure: The appraiser looks at the building style, number of floors, number of rooms and any structural items that may cause appreciation or depreciation of the property. They also consider the square footage and size of the home.
  • Neighborhood comparables: An appraiser will incorporate neighborhood comparables, or “comps,” in their evaluation. A comp is a recent sale or listing located near the property, and the appraiser notes any of the shared physical or functional features with your property.
  • Age of the home: The home’s age is also taken into account and can impact the home’s appraised value.

» MORE: What is an appraisal contingency?

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    Can I trust online real estate sites for my home’s appraisal value?

    You can use an online real estate site for a home appraisal as a guide or estimate, but these sites are generally intended as a guide or starting point only. The best approach is relying on information provided by a real estate professional’s analysis.

    How can I increase my home’s appraised value?

    An appraiser assigns a value based on a wide range of factors, but you may be able to increase your home’s appraised value by making improvements to your home, including the interior, exterior and landscaping. You can provide an appraiser with the information regarding any improvements you’ve made when they come to your property for the appraisal.

    Can I sell my home over the appraised value?

    Yes, you can sell your home over the appraised value because appraised value does not have to match market value. However, a lender will only lend to a borrower based on the appraised value. “One instance we saw near disregard for appraisal value and focus on market value was during the low interest rate, COVID home-buying rush,” Simonetti, of Simonetti Real Estate Team in Minneapolis, said. “Multiple offers well above listing price, with no inspection contingency, were common. In some cases, a property would appraise below the offer price. The buyer would have to either walk away or bring more cash to closing to meet the lender’s requirements. Often, buyers would bring more cash to make up the loan-to-value difference required for their loan's underwriting.”

    Is market value usually higher than appraised value?

    The answer depends on the current marketplace for buyers at the time of your property’s listing. If buyers show little interest in your home at the current sales price, then it may indicate the market value is lower than the appraised value. However, if there’s intense interest in your home and multiple offers, you may have a situation where the market value is higher than the appraised value.

    Bottom line

    Understanding the difference between appraisal value and market value can help you as you navigate the homebuying, selling or refinancing process. You can improve your home’s appraisal or market value by maintaining your home and making home improvements.

    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. FDIC, “Understanding Appraisals and Why They Matter.” Accessed Feb. 13, 2024.
    2. National Association of Realtors, “Residential Appraisal Process - FAQs for Agents.” Accessed Feb. 13, 2024.
    3. First Savings Mortgage Corporation, “What is a Real Estate Assessment and How Does It Affect Me?” Accessed Feb. 13, 2024.
    4. New York State Department of Taxation and Finance, “How to estimate the market value of your home.” Accessed Feb. 13, 2024.
    5. The Appraisal Foundation, “A Guide to Understanding A Residential Appraisal.” Accessed Feb. 13, 2024.
    6. Redfin, “Redfin Estimate.” Accessed Feb. 13, 2024.
    7. Redfin, “How to Increase Your Home Appraisal Value.” Accessed Feb. 13, 2024.
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