The Difference Between Appraisal Value And Market Value

A man assessing the appraised value of the property

When it comes to real estate and home appraisals, two important terms often come up: appraised value and market value. These terms might seem interchangeable, but they have distinct meanings and implications. Let’s delve into what each term means, the factors influencing them, and why they matter.

A group of people discussing the price difference from appraised value and market value

The Difference Between Appraised Value and Market Value

While appraised value is a professional estimate used primarily for financing purposes, market value reflects the actual selling price agreed upon by a buyer and seller. The appraised value is more static and based on objective criteria, whereas market value can fluctuate based on market dynamics, subjective buyer perceptions, and the property’s marketability.

What Is Appraised Value?

Appraised value refers to the estimated value of a property determined by a professional appraiser. This value is based on a thorough analysis of the property, considering both external and internal factors.

External Factors Include

  • Location: The neighborhood’s quality, commercial buildings, school district, and proximity to amenities.
  • Market Conditions: The current state of the real estate market and recent sales of similar properties.
  • Lot Size: The overall size of the property and its usability.

Internal Factors Include

  • Property Condition: The state of the property, including any renovations or damages.
  • Size and Layout: The square footage and the functional layout of the home.
  • Upgrades and Features: Any improvements or unique features that add value, such as modern kitchens or swimming pools.

Three Most Common Appraisal Types

  1. Sales Comparison Approach: Comparing the residential property with recently sold homes in the area.
  2. Cost Approach: Estimating the cost to rebuild the property from scratch.
  3. Income Approach: Used mainly for rental properties, assessing the potential income the property could generate.

What Is Market Value?

Market value is the price a buyer is willing to pay for a property in the current market conditions. Unlike appraised value, market value is more dynamic and influenced by buyer perception and demand.

Factors That Influence Market Value

  • Supply and Demand: The number of available properties versus the number of buyers.
  • Economic Conditions: Interest rates, employment rates, and overall economic health.
  • Buyer Sentiment: Trends and preferences among buyers, such as the popularity of certain neighborhoods.
A real estate agent doing Comparative market analysis to determine a fair market value of the property

How to Determine a Fair Market Value

  • Comparative Market Analysis (CMA): Real estate agents compare the property to similar homes recently sold in the area.
  • Market Trends: Reviewing current trends in the housing market.
  • Buyer Behavior: Understanding what buyers are looking for and willing to pay.

Why Appraised Value Matters

The appraised value is crucial for lenders to determine how much money they are willing to loan. It ensures that the loan amount does not exceed the property’s worth, protecting both the lender and the buyer from potential losses.

Impact of Appraisal Value & Market Value on Real Estate & Finance

Understanding the intricacies of real estate can be daunting, but two fundamental concepts—appraisal value and market value—play crucial roles in the property market. These values influence various aspects of real estate transactions, from buying and selling to investing and lending. Let’s dive deeper into how these values impact different areas of real estate and finance.

Agents talks about a potential higher selling price because of the prime location of the property

How Appraisal Value Impacts Buying or Selling a Property

The appraisal value of a property is an expert’s estimate of its worth based on several factors, including location, condition, and recent sales of similar properties. This value is critical when buying or selling a property as it serves as a benchmark for negotiations.

For Buyers: Knowing the appraisal value helps buyers avoid overpaying for a property. Lenders use this value to determine how much they are willing to lend. If the appraisal value is lower than the selling price, buyers may need to renegotiate or come up with a larger down payment.

For Sellers: A high appraisal value can be advantageous, potentially leading to a higher selling price. However, if the appraisal value is lower than expected, sellers might need to lower their asking price to attract buyers and close the deal.

How Market Value Affects Real Estate Investment Decisions

Market value represents what a property can realistically sell for on the open market. It is influenced by supply and demand dynamics, economic conditions, and trends in the real estate market.

For Investors: Understanding market value is essential for making informed investment decisions. Investors look for properties with market values that promise good returns. If the market value is expected to increase, the property becomes a lucrative investment. Conversely, if the market is declining, investors might avoid or sell off their properties to minimize losses.

How Appraisal Value & Market Value Impact Lending Decisions

Both appraisal value and market value significantly influence lending decisions made by financial institutions.

For Lenders: The appraisal value helps lenders assess the risk of a loan. A higher appraisal value can justify a larger loan amount, while a lower value might result in a smaller loan offer or stricter lending terms.

For Borrowers: Understanding both values helps borrowers navigate the lending process. If the appraisal value is lower than the purchase price, borrowers may face challenges in securing a loan that covers the full cost of the property. Knowing the market value helps borrowers determine if a property is a sound investment, ensuring that they do not borrow more than what the property is worth.

The Role of Market Value in Determining Property Taxes

Market value also plays a crucial role in determining property taxes. Local governments assess properties to calculate taxes, using market value as a primary metric.

For Homeowners: Knowing the market value can help homeowners anticipate their property tax obligations. If the market value increases, property taxes are likely to rise, reflecting the property’s higher worth. Conversely, a decrease in market value might result in lower property taxes.

For Real Estate Professionals: Understanding how market value influences property taxes helps real estate agents advise clients accurately. They can provide insights into future tax liabilities, helping buyers make informed decisions and sellers understand the implications of their asking prices.

Home buyers trying to renegotiate the price to purchase the property

What Happens When the Appraised Value and Market Value Are Different?

Discrepancies between appraised value and market value can lead to various outcomes. If the appraised value is lower than the market value, buyers might face challenges securing a loan for the purchase price. In such cases, buyers might need to renegotiate the price or make up the difference out of pocket or provide additional evidence to support a higher valuation. Conversely, if the appraised value is higher than the market value, it can benefit the buyer by providing more equity in the property from the start.


Understanding the difference between appraised value and market value is crucial in real estate transactions. Appraised value is a professional estimate used primarily by lenders to determine loan amounts, ensuring financial protection for both parties. Market value, on the other hand, is the actual price a buyer is willing to pay under current market conditions. The dynamic nature of market value is influenced by factors such as supply and demand, economic conditions, and buyer sentiment. Discrepancies between these values can affect loan approvals and negotiations, emphasizing the importance of accurate appraisals and market assessments. By comprehending these distinctions, buyers and sellers can make informed decisions, ensuring fair and successful transactions.


  1. What is an appraisal in real estate? An appraisal is a professional assessment of a property’s value conducted by a licensed appraiser, used primarily for financing purposes.
  2. How often do appraised values and market values differ? Appraised values and market values can differ frequently, especially in volatile or rapidly changing markets.
  3. Can a property’s appraised value change over time? Yes, a property’s appraised value can change due to market conditions, property improvements, or changes in the neighborhood.
  4. Who pays for the appraisal during a home sale? Typically, the buyer pays for the appraisal as part of the mortgage application process.
  5. What should I do if the appraised value is lower than the offer price? If the appraised value is lower than the offer price, you may need to renegotiate the price, increase your down payment, or provide additional evidence to support a higher valuation.
A professional appraiser in his office

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