When selling a home, understanding how your property’s value is determined is essential. Two terms that often come up during the selling process are appraised value and market value. Though they sound similar, they serve different purposes and can significantly affect how your home is priced, marketed, and sold.
This article explains the differences between appraised value and market value, how each is determined, and what sellers need to know to navigate the home-selling process confidently.
What Is Appraised Value?
Appraised value is the professional, unbiased opinion of a home’s worth, determined by a licensed real estate appraiser. This value is typically used by lenders during the mortgage approval process to ensure the loan amount is not more than the property’s worth.
Key Features of Appraised Value:
- Determined by a certified appraiser
- Based on recent comparable sales, property condition, location, size, and upgrades
- Primarily used for mortgage lending and refinancing
- Objective and standardized process
Appraisers follow a regulated method, often using the sales comparison approach, where similar recently sold homes in the area (called “comps”) are analyzed. Adjustments are made based on differences like square footage, lot size, condition, or amenities.
What Is Market Value?
Market value is the price a buyer is willing to pay for a property in an open market. It’s influenced by current housing trends, buyer demand, inventory levels, and emotional appeal.
Key Features of Market Value:
- Based on buyer behavior and current market conditions
- Can change quickly due to economic shifts, interest rates, or neighborhood changes
- Often determined by real estate agents through a Comparative Market Analysis (CMA)
- Subjective and influenced by competition and presentation
While an appraiser focuses on data, buyers may consider factors like a beautifully staged interior, curb appeal, school district, or unique architectural features—making market value more fluid.
Why the Two Values Might Differ
It’s common for appraised value and market value to differ. Here’s why:
1. Market Dynamics:
A hot seller’s market with multiple offers can push the sale price above the appraised value, especially if buyers are willing to waive appraisal contingencies.
2. Emotional Influence:
Buyers may place a higher value on features like updated kitchens, landscaped yards, or proximity to desirable amenities, which may not significantly influence an appraiser’s calculation.
3. Timing Differences:
Appraisals reflect past sales (usually 3–6 months old), while market value is influenced by present-day buyer interest and competition.
4. Subjective Upgrades:
Sellers may believe certain home improvements add major value, but unless these upgrades are standard in the area, appraisers may not give them significant weight.
How It Impacts Sellers
1. Pricing Your Home
Understanding both values helps sellers set realistic expectations. Pricing too high above the appraised value can limit buyer interest and financing options. Pricing too low could leave money on the table.
2. Negotiating Offers
If a buyer’s lender orders an appraisal and the home appraises below the agreed purchase price, several outcomes are possible:
- The buyer asks for a price reduction
- The buyer makes up the difference in cash
- The deal falls through if neither side compromises
3. Preparing for Appraisal
Sellers should ensure their property is in the best condition possible for the appraiser’s visit. Cleanliness, curb appeal, and a list of recent improvements can all support a stronger appraisal outcome.
Tips for Sellers
– Get a Pre-Listing Appraisal (Optional)
If you’re unsure about your home’s value, consider hiring a certified appraiser before listing. This can help you set a price grounded in objective analysis and prevent surprises later.
– Work with a Local Real Estate Expert
An experienced real estate professional can help bridge the gap between appraised and market value by analyzing comps, understanding buyer behavior, and recommending effective pricing strategies.
– Highlight Value-Boosting Features
Prepare a document for the appraiser listing recent upgrades, energy-efficient features, or unique selling points that may influence their valuation.
– Avoid Overpricing
Even in strong markets, overpricing can result in longer time on the market, multiple price reductions, and appraisal problems during escrow.
Conclusion
While appraised value and market value both help define your home’s worth, they serve different roles. The appraised value supports the financing process with objective data, while the market value reflects real-time buyer interest and what someone is willing to pay.
For sellers, the key is understanding how both values influence pricing, negotiation, and the success of the sale. By staying informed and working closely with professionals, you can navigate both valuations strategically and maximize your home’s selling potential.
FAQs
Q1: Can I sell my home for more than the appraised value?
Yes, you can. However, if a buyer is using a mortgage, their lender may not approve a loan for more than the appraised value. In such cases, the buyer would need to cover the difference in cash or renegotiate the price.
Q2: What happens if my home appraises for less than the agreed sale price?
The buyer may request a lower sale price, or offer to pay the difference in cash. If neither party agrees to the new terms, the deal could fall through.
Q3: Should I price my home at the appraised value?
Not necessarily. You should price your home based on market conditions, comparable sales, and current buyer demand. The appraised value is just one factor to consider.
Q4: Is appraised value always lower than market value?
Not always. In some cases, especially in slower markets or with motivated sellers, the appraised value may match or exceed what buyers are willing to pay. However, during hot markets, market value often exceeds the appraised value.
Q5: Who pays for the home appraisal?
Typically, the buyer pays for the appraisal as part of their mortgage approval process. However, sellers may also pay for a pre-listing appraisal if they want an independent assessment before setting a price.
