Market Value and Appraised Value are both important terms in real estate, but they refer to slightly different things.
1. Market Value
- Definition: The price at which a property would likely sell in a competitive, open market.
- Determined By: Market value is typically determined by what a buyer is willing to pay, based on current market conditions.
- Influencing Factors:
- Recent sales of comparable properties (known as “comps”).
- The overall demand for real estate in the area.
- Property features like location, size, condition, and amenities.
- Economic factors, such as interest rates and market trends.
- Subjectivity: Can fluctuate based on buyer and seller perceptions, market sentiment, and negotiations.
2. Appraised Value
- Definition: A professional estimate of a property’s value, often used by lenders to determine how much they will lend for a mortgage.
- Determined By: A licensed appraiser, who evaluates the property using industry guidelines and specific data.
- Influencing Factors:
- Similar factors as market value (comps, condition, size, etc.), but more standardized.
- Specific guidelines and formulas that appraisers follow to ensure consistency.
- The appraiser’s objective analysis of the property rather than the subjective view of buyers and sellers.
- Stability: Tends to be more stable than market value because it’s based on a professional evaluation rather than current market fluctuations.
Key Differences:
- Market value reflects the current selling price in the market, whereas appraised value is a formal estimate used by financial institutions.
- Market value can be influenced by emotions, urgency, or bidding wars. Appraised value is based on more objective criteria.
- A property’s market value may be higher or lower than the appraised value, especially in a volatile market.
If you’re buying or selling a home, understanding both values is crucial, as lenders will use the appraised value to determine how much they’ll lend, while the market value determines the price you’ll likely pay or receive.