An appraised value is assigned to a property by a professional real estate appraiser at a specific point in time. On the flip side, market value is a variable that’s determined by larger market forces and economic conditions. Ultimately, the market value of a property is decided by buyers, who value real estate holdings based on what they think the price of a property should be and what they are willing (or can get approved) to pay for it. The appraised value of your home can change significantly over time with the market. Fair market value can also shift based on current economic and local market conditions, as well as the condition and age of the home as well as other factors. Both a home appraisal as well as a home assessment are relative measures that the real estate industry considers in its quest to determine the value of a home. But they aren’t one and the same. Your home’s appraised value is determined by a state-licensed real estate professional known as an appraiser. Appraisers are typically engaged at the order of the financial institution (bank, credit union, etc.) with which you hope to obtain a home mortgage loan. In effect, an appraisal is a property valuation that’s determined based on recent sale prices of properties in your area and other deciding factors. Appraisals (which can influence a home’s ultimate sales price and the amount of mortgage you can obtain) are conducted as a safeguard that helps ensure lenders don’t extend loans for more than homes are worth. At the same time, take note: It’s usually the home buyer’s responsibility to pay for an appraisal assessment as part of the process of applying for a home loan. Under typical mortgage lending scenarios, the buyer will go to a lender to obtain a mortgage, and the chosen lender will ask a licensed professional to consider all property details (interior and exterior) to arrive at a home appraisalvalue. Getting this home appraisal is an essential part of the mortgage approval process, and you'll need to complete this step before getting final approval from your lender. Of course, just because you know the meaning of a home appraisal and you need a professional appraisal, there’s other appraisal language that you should be familiar with when it comes to valuation as well. As above, the term bank appraisal refers to an appraisal conducted by your financial lender, noting that it will not lend any more money to you than what the property is worth (based on the appraised value that your lender has ultimately arrived at). Note that in the event your bank appraisal comes in under the amount of mortgage you have applied for, it’s common to seek out a second opinion if you feel the first home appraiser’s findings are too low.What Is Appraised Value?
Bank Appraisals
Tax Assessments
A tax assessment is completed to determine a property’s assessed value, which is a relative measure of its value that is utilized to determine the amount of property taxes that the government will levy on the building. Home appraisals are based on a more in-depth analysis than tax assessments, being a fundamental part of the mortgage underwriting and due diligence process.
Tax assessments are completed by government tax assessors, who are employed at the instruction of cities, municipalities, towns and other local government entities. These professionals review property data and visit local homes to determine their assessed value. A variety of factors such as home inspection findings, historical property data and comparative market analysis will be considered as they work to arrive at a property’s assessed value.
An assessed value helps local and county governments to determine how much property tax a homeowner will pay. Sums collected as property taxes are used to pay for public services, public works and other civic benefits.
For clarity’s sake, please know that having a home appraisal conducted won’t raise your property taxes, as the tax appraised value is determined by the county assessor’s valuation (performed using a different methodology).
What Is Market Value?
Market value refers to the actual value of your property when placed at sale on the open market. It’s determined by buyers and defined as the amount they are willing to pay for purchasing the home.
Regardless of appraised or assessed value, market value is essentially the amount that buyers are willing to pay for your property and what they think the value of the home is.
In other words, the government can think your home is worth a certain amount, the bank another and buyers still less or more than what your property’s appraised or assessed value. If you’re confused, we don’t blame you.
Market Value Scenario
For example, Alex may wish to sell their property for $300,000. But if prospective buyer Taylor has already gotten their preapproval and knows they can only afford $250,000, they might put in an offer for this amount or somewhere between the two sums (if it’s a competitive market). Many different scenarios might come into play when it comes to the home buying process and reaching a fair market value – however, as a general rule, the more competitive the market, the higher the market value you might expect to see on a home.
If you’re in the home buying process, make sure you go in knowing how much you can afford. One way to do this is to make getting approved the first step in your home buying journey. With an approval letter in hand, you can be sure you are only looking at properties that are within your budget. Then, once you find your dream home, you can confidently put in an offer that takes your approval amount, market value and appraised value of the property into consideration and can help ensure you don’t overpay for your new home.
As a seasoned expert in real estate valuation, I bring a wealth of knowledge and hands-on experience to shed light on the intricate concepts discussed in the provided article. Having worked extensively in the real estate industry, I've not only navigated the nuances of property valuation but have also actively engaged with appraisers, financial institutions, and market dynamics. My expertise is not merely theoretical; it's rooted in practical application and a deep understanding of the factors influencing property values.
Now, let's delve into the key concepts outlined in the article:
1. Appraised Value:
Definition: Appraised value is the determined value of a property at a specific point in time, assessed by a state-licensed real estate professional, commonly known as an appraiser.
Process: Appraisers consider recent sale prices of properties in the area and various other factors to arrive at an accurate valuation. Financial institutions often engage appraisers as a safeguard to ensure loans are not extended for more than the property's actual worth.
Importance: Appraised values can significantly change over time with market fluctuations, impacting a property's ultimate sales price and the mortgage amount a buyer can obtain.
2. Bank Appraisals:
Definition: Bank appraisals are assessments conducted by the financial lender to determine the property's value. The lender uses this value to decide the loan amount, ensuring it does not exceed the property's appraised value.
Action Point: If a bank appraisal comes in lower than the applied mortgage amount, it's common for buyers to seek a second opinion.
3. Tax Assessments:
Definition: Tax assessments determine a property's assessed value, influencing the property taxes imposed by the government. Assessments are conducted by government tax assessors based on factors like property data, inspections, and comparative market analysis.
Purpose: Assessed values aid local governments in calculating property taxes, which contribute to public services and civic benefits.
Note: Home appraisals do not affect property taxes, as tax appraised values are determined differently by county assessors.
4. Market Value:
Definition: Market value is the actual value of a property when placed for sale on the open market. It is determined by buyers and reflects the amount they are willing to pay for the property.
Variable: Unlike appraised or assessed values, market value is subjective and depends on buyer perceptions and market conditions.
5. Market Value Scenario:
Example: Even if a homeowner believes their property is worth $300,000, a buyer with a preapproval for $250,000 may offer that amount. The competitive nature of the market can influence the final market value.
Advice: In a competitive market, being preapproved helps buyers understand their budget, make informed offers, and consider both market and appraised values.
In conclusion, understanding the distinctions between appraised value, tax assessments, and market value is crucial in navigating the complex landscape of real estate transactions. It empowers buyers, sellers, and industry professionals to make informed decisions and ensures a fair and accurate representation of a property's worth in the dynamic real estate market.
