Appraised Values vs. Market Values

appraisal value vs market value

In the world of real estate, understanding terms like “appraised value” and “market value” is crucial. The comparison of market value vs appraised value deeply influences the perceived worth of a property and plays a significant role in crucial transactions, whether you’re selling, buying, or assessing property values for diverse needs such as estate planning, taxation, probate, or other purposes.

SHERIDANS has the knowledge and experience to assist you with your property valuation and to guide you through the process of determining a property’s true worth in today’s real estate market.  Contact us today to schedule a no-fee consultation on all your valuation and market guidance needs.

Appraised Value

The appraised value is a professional estimate of a property’s worth, carefully evaluated by a knowledgeable, professional appraiser. This evaluation considers various facets, including the property’s condition, its location, square footage and comparative prices of similar properties.

Market Value

Market value revolves around potential and reflects the price agreed upon by a buyer and seller, taking into account comprehensive information and without any undue pressure. The market value of a home indicates what a buyer is willing to pay, often influenced by market conditions.

Understanding these values is pivotal, especially considering that every potential buyer will have his or her own perspectives, opinions of value, and the motivations behind property transactions, which significantly impact the pace and price at which a property might sell, especially in markets with varying demand levels.

For sellers, it is important to consider your selling motivation when establishing your “List Price” and desired selling price. A property priced too high can result in a longer selling time, which can stigmatize a property. Pricing your property competitively will typically result in the best outcome and in an aggressive market can bring about a final price above your expectations.

Determining these Values

Appraisers employ a multifaceted approach to determine a property’s appraised value, analyzing past sales, property conditions, location, and various other factors.

Market value, on the other hand, fluctuates based on market dynamics, responding to trends, economic conditions, and buyer-seller sentiments.

Factors Influencing Values

The age-old adage about property values, emphasizing “LOCATION, LOCATION, LOCATION,” holds true. A prime location with desirable features often commands higher values, receiving validation from both appraisers and market trends.

Property condition significantly affects value perception. Well-maintained properties with attractive curb appeal usually secure higher appraised values and fetch better prices in the market.

Comparative sales of nearby properties also influence market values, a critical factor appraisers consider during valuation assessments.

Significance in Transactions

For sellers, understanding the appraised value aids in setting a realistic price that attracts buyers without deterring them. Market value, on the other hand, is the live wire guiding buyer decisions and negotiation strategies. Property owners should be aware of this dynamic.

Balancing both values is pivotal; setting a price too low might lead to a quick sale but at the cost of potential earnings, while an inflated price might hinder the sale and affect both the final price and speed of the sale.

Financial Implications

Lenders rely on appraised value to gauge loan-to-value ratios, aiming to minimize risks. Differences between negotiated sale prices and appraised values can result in the necessity to renegotiate contracts in order to obtain financing approvals for the buyer. This is often the case in sellers’ markets when the appreciation in values of homes outpace the appraisal data to support current values. Furthermore, property taxes are often influenced by the appraised value of a home, adding another layer of importance to accurate valuations.

Market value fluctuations relative to appraised values can also impact loan conditions, potentially favoring borrowers.

Negotiation Dynamics: Appraised Value vs. Market Value

Appraised value grounds negotiations in reality, guiding discussions when prices diverge significantly. Market value, especially in dynamic markets, can exceed appraised values, influencing negotiation dynamics.  When dealing with cash buyers, the appraised value may become less of a concern during increasing markets.  For financed buyers, the appraised value typically must come in at or below the contracted purchase price for the deal to work.

Having a grasp of both values empowers sellers to justify their prices based on a combination of appraised value and potential, while buyers can leverage market values to negotiate effectively.

Smart Investment

For investors, appraised value forms a foundational element in assessing potential returns and ensuring price viability. Understanding market value provides insights into current demand dynamics and potential profit margins.

Successful investors integrate both values into their strategies, leveraging appraised value for financial groundwork while aligning with current market realities to make informed decisions.

Final Considerations

While appraised value offers a professional assessment, relying solely on it might limit perspectives. Staying attuned to market value trends, supply-demand dynamics, and economic indicators is vital for informed decision-making.

For comprehensive guidance on appraised and market values and informed real estate choices, SHERIDANS stands ready. Our team specializes in detailed appraisals, market analyses, and  expert guidance for buyers, sellers, and investors. We’re dedicated to offering precise appraisals and current market insights, ensuring informed real estate decisions for your journey in buying or selling real property.