Appraised vs market value: What’s the difference?

If you’re preparing to sell your house, you’re likely wondering what it’s worth. But you probably didn’t expect to get two different answers: an appraised value and a market value.

An appraised value is a professional valuation of your home’s worth, while the market value is the price buyers are willing to pay. Both valuations — which can sometimes be drastically different from each other — play an important role in your home sale, and understanding their roles is vital to ensuring that you get the most value out of your property.

What’s an appraised value? 

An appraised value is an estimate of a property’s worth by a licensed appraiser. To determine their valuation, they typically conduct a home appraisal, where they evaluate the home’s condition and features. They will then conduct a market analysis before completing their appraisal report.

While appraisals have historically been completed in-person, desktop appraisals — an all-remote form of appraisals — have gained popularity since the pandemic and the advent of highly capable and efficient digital technologies.

Here are some of the things an appraiser considers during their valuation:

• Location
• Square footage and lot size
• Property condition
• Number of bedrooms and bathrooms
• Amenities (like pools, spas, etc.)
• Construction quality and structural integrity
• Recent updates
• Price of comparable properties in the area

→ Find out what brings down home values

Within appraisals, there are several varieties, each with a unique aim. Here’s a breakdown of the three most common appraisals types:

Bank appraisal

This kind of appraisal is conducted on behalf of a mortgage lender to confirm that the home is worth the value of the loan or more. An unbiased third party conducts it to secure an impartial home assessment.

Lenders require appraisals to secure financing for a mortgage in order to ensure that the home is adequate collateral for the loan in case the borrower can no longer make payments on their mortgage. If the appraisal comes in low, the lender may not approve the mortgage because it would be too great a risk for the lender.

→ What to do if the appraisal comes in low

Tax appraisal

Property taxes are an important driver of revenue for local governments. As such, tax assessors are tasked with keeping track of property values to fairly and accurately levy taxes. To do so, tax assessors are employed by local governments to review property data and conduct tax appraisals, sometimes called tax assessments.

Related: What are automated valuation models (AVM)?

Assessors use home inspection findings, historical property data, and comparative market analysis to conduct their appraisals. They will sometimes supplement these findings with an in-home visit or a drive-by appraisal — where an appraiser only examines a home's exterior.

Luckily, if your bank appraisal (or any other form of appraisal) comes in higher than your tax assessment, your taxes won’t automatically be raised. Tax assessments are the sole value that is used to calculate your property tax.

Real estate appraisal

Lastly, a real estate appraisal is a valuation of the home’s market value to help sellers prepare their home for sale. Unlike a bank or a tax appraisal, a real estate appraisal includes a listing strategy, like marketing techniques and pricing plans.

What is market value?

In contrast to an appraisal, market value is the price of a property when placed on the housing market. It is ultimately determined by the buyer and what the buyer is willing to pay for the property. Supply and demand play a large part in determining this value because these factors dictate what a buyer is willing and able to pay.

Unlike an appraised or assessed value, a real estate professional does not determine the market value (though they will run comps as part of a comparative market analysis to decipher this.) Don’t be surprised if the market value and your appraised or assessed value don’t align — buyers and appraisers have different priorities when determining how much a property is worth.

Factors that influence market value

The market value can change dramatically, especially in a turbulent time like a market correction or when sellers fear house prices will drop. Here are a few of the factors that impact the market value of a home:

• Location
• Home size and usable space
• Property condition
• Recent updates
• Local market trends
• Macroeconomic trends

There are many similarities to the factors considered by appraisers. However, local and macroeconomic trends play a larger role in buyers’ assessment of property values.

For example, rising interest rates can dampen buyer sentiment and drive down the market value of a home because there are fewer buyers for the house. Whereas low-interest rates can drive up the price of a house — an excess of buyers often incites bidding wars, which can put market values well over any appraised value.

→ Learn how to increase your home's value

Appraised value vs. market value

In review, the appraised value is a price assigned to a property by a licensed and certified real estate appraiser, while the market value is the price that buyers are willing to pay for it on the real estate market. There can be stark differences between an appraised value and market value, especially when the market swings between extremes.

→ Learn more about if it’s a buyer’s or a seller’s market

What happens when the appraised value and market value are different?

As much as 8% of contracts had a delayed settlement due to appraisal issues, according to the National Association of Realtors Confidence Index Survey. That’s because lenders typically won’t approve a mortgage for a home that appraises below the purchase price (or the market value) of a home since it would be inadequate collateral for the loan. This is a common scenario in seller’s markets, where the overwhelming demand can drive up asking prices of homes.

Lenders typically don’t have this same problem if a house appraises for more than the loan since the home would be more than adequate collateral. However, sellers can have a hard time accepting an offer below their appraised value if they feel they deserve more than what buyers are willing to pay.

If you’re worried about your home sale falling through, Orchard can help. We’ll guarantee your home sale and list it on the market to ensure you get top dollar.