The appraised value is a professional opinion about the market value of a property or item. If you are buying or selling a home, you may have a good idea of your property’s worth. However, formal financial decisions, such as whether you qualify for a mortgage loan, are not based on assumptions. They are based on the appraised value, which is the opinion of a qualified professional appraiser.
Definition and Example of Appraised Value
The appraised value is a professional opinion about the market value of a property or item. Appraised values are subject to change. For example, a home’s appraised value in one year may differ in the next year due to factors that can affect market value at a given time.
Home appraisals are conducted by a licensed appraiser who examines the property and looks at comparable listings and sales in the area. The appraiser reviews current market trends and the property’s features when determining the property’s value.
How Appraised Value Works
The appraised value is important because lenders use the appraisal to determine how much money they will lend you and the terms of the loan. For example, if you are trying to buy the home, you will need mortgage funding from the lender (unless you are making a cash offer). “For the buyer to secure funding for the full purchase price, the appraisal must be equal to or greater than the purchase price,” according to Jeremy Kam, a licensed real estate salesperson at Warburg Realty in New York.
The appraised value helps protect lenders, but it can also benefit buyers. That’s because the official appraisal value of the home can protect buyers from paying more than the fair market value for the property.
Appraised Value vs. Market Value
The appraised value is an estimate of market value, while market value is the final sale price, which is determined by buyers and sellers. Here are more details on how they compare:
Appraised Value:
- Determined by a licensed appraiser
- An important factor for lenders
- Analytical and objective value
- Can become outdated over time
Market Value:
- Determined by consumers (buyers/sellers)
- Not important for lenders
- Can be a value with personal and emotional significance
- Reflects real-time fluctuations
While appraised value and market value are somewhat similar, there are differences between them. For example, appraisers tend to use closed sales in comparisons when determining a home’s value. But this can sometimes be inaccurate due to market fluctuations. On the other hand, market value is more subjective than appraised value because it relies on consumer decisions.
Is Getting an Appraisal Worth It?
Getting an appraisal is definitely worth it if the lender requires it, but it may also be worth it even if it’s not required. The appraised value can affect the final price of the home. If you are the buyer and the home has an appraisal lower than the contract price, getting the appraisal can work in your favor. You may not be willing to pay the original price the seller asked for in this case.
According to Michael J. Franco, a licensed real estate agent at Compass Realty in New York, “If there is a financing condition and the property is not appraised at the contract price, the buyer may have to negotiate a price reduction or terminate the contract.” But if the seller is not willing to negotiate, and if the buyer does not want to terminate the contract, there is only one option: the borrower will need to pay the difference.
Can the Appraised Value Be Increased?
Increasing the appraised value can be challenging. Your options are to challenge the appraisal or make physical changes to the property.
You may be able to provide comparables that justify an adjustment, but appraisers are rarely willing to adjust their findings and the value of the appraisal, according to Kam and Franco.
The option
The other is to increase the appraised value of the property through a home renovation project. You can add rooms or increase the size of the existing space, which can help in raising the appraised value.
However, increasing the appraised value often does not translate to a dollar-for-dollar comparison, according to Warners. “For example, if you add an extra bathroom that costs $20,000, it may not mean that the home will be appraised or sold for $20,000 more.”
The appraised value of the property is used by the mortgage company. The appraised value is different from the market value. The appraised value is an objective value while the market value can be a value of a personal and emotional nature. The appraised value can increase, but it often does not lead to a dollar-for-dollar comparison.
Sources:
National Association of Realtors. “Residential Home Appraisal Process – FAQs for Real Estate Agents.” Accessed October 12, 2021.
Source: https://www.thebalancemoney.com/what-is-appraised-value-5205352
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