Appraised value vs market value: What's the difference?

When buying or selling a home, you'll hear two terms thrown around constantly: appraised value and market value. Both help determine a property's worth, but they're calculated and used differently in the home-buying process. One focuses on professional assessment, while the other reflects what buyers are willing to pay in today's market conditions.

Understanding the difference between market value and appraised value is key to making good decisions, whether you're a first-time buyer or a seasoned homeowner looking to refinance. Here’s a breakdown of appraised value versus market value to get you started.  

What does appraisal value mean?

An appraised property value represents a professional opinion of what your property is worth based on a detailed evaluation by a licensed appraiser, which helps lenders make sure they don’t lend more than the property is worth. 

To determine a property value, appraisers look at the home's square footage, number of bedrooms and bathrooms, lot size, and overall condition. They also consider recent sales of comparable properties (called "comps") within the same neighborhood, usually within the last six months. Location plays a huge role too. A home near good schools, parks, or shopping centers will likely appraise for more than one in a less desirable area.

When you apply for a mortgage, your lender will order an appraisal to make sure the home is worth the amount you want to borrow. The appraiser examines everything from the property's condition and size to recent sales of similar homes.

Appraisers must follow specific guidelines from government-sponsored enterprises like Fannie Mae and Freddie Mac. These standards help keep consistency across different appraisals but can also make the process feel rigid compared to how buyers shop for homes. 

What is market value in real estate?

Market value represents the price a willing buyer would pay to a willing seller in an open market, assuming both parties have enough information to make an informed decision. Unlike the appraised value of a house, market value changes constantly based on supply and demand, economic conditions, and buyer preferences.

Market value is determined through actual market activity—what people are actually paying for homes. If buyers in your neighborhood pay $400,000 for three-bedroom houses, that's closer to the actual market value, regardless of what an appraiser might say. Factors like local housing inventory, interest rates, or and seasonal buying patterns can influence the market value of your home.

Sometimes market value can be higher or lower than appraised value, especially if the housing market is unusually hot or cold. 

The role of market value in determining property taxes

Local governments use assessed values (similar to appraised values) to calculate property taxes, but these assessments should reflect market conditions. When market values rise faster than assessed values, property owners might see tax increases as assessments catch up to current market conditions.

Property owners can appeal their tax assessments if they believe the assessed value exceeds the current market value. Recent sales data and professional appraisals support appeals, potentially reducing tax burdens during market downturns.

Appraised value vs market value

To summarize: an appraised property value comes from a licensed professional who follows strict guidelines and comparable sales data to figure out a property's worth, while market value reflects the real-world price that buyers and sellers agree upon based on current market conditions and demand.

Appraisal and market value in practice

Let's say you find a home listed for $350,000 in a competitive neighborhood. You love the house and offer $360,000 to beat out other buyers. The seller accepts your offer, making the current market value $360,000. 

However, when your lender orders an appraisal, the appraiser determines the home's worth at $340,000 based on recent comparable sales and the property's condition. Now, the market value ($360,000) exceeds the appraised value ($340,000) by $20,000.

Most lenders set loan amounts based on the lower appraised value. You'll need to come up with the extra $20,000 as an additional down payment, negotiate with the seller to lower the price, or find another way to bridge the gap. This scenario happens frequently in competitive markets where bidding wars drive prices above what appraisers consider reasonable.

When appraisal and market value don't align

When market value isn’t the same as appraised value, it can create challenges for both buyers and sellers. If the appraised value is lower than the purchase price, buyers might need to pay the difference out of pocket or renegotiate the deal.

Several factors can cause this misalignment. 

— In rapidly appreciating markets, appraisers might rely on older comparable sales that don't reflect current price increases. 

— Unique properties without many similar homes nearby can also be challenging to appraise accurately.

— Emotional factors like a buyer's attachment to a specific neighborhood or home features drive market prices above what appraisers consider reasonable.

These scenarios are why some home-buying contracts include an appraisal contingency. With an appraisal contingency, the buyer can withdraw their offer if the home’s appraised value is lower than the proposed purchase price.

When appraised value exceeds market value, it indicates a buyer's market where homes sell below their assessed worth. While this creates opportunities for buyers to get good deals, it might signal declining property values or economic uncertainty in the area.

How appraisal value affects property purchases and sales

Appraisal value directly impacts your mortgage approval and loan terms. Lenders use the appraised value to calculate your loan-to-value ratio, which affects your interest rate and whether you'll need private mortgage insurance. If you're putting down less than 20%, a higher appraisal can help you avoid PMI or qualify for better rates.

Better helps coordinate with appraisers and makes the experience less stressful than traditional mortgage processes. Plus, our online platform streamlines the entire appraisal process by keeping you updated every step of the way. Track your application progress, upload documents digitally, and get pre-approved in as little as three minutes without gathering extensive paperwork upfront. 

...in as little as 3 minutes – no credit impact

How market value influences real estate investment choices

Market value drives investment decisions because it reflects buyer demand and economic conditions. Real estate investors analyze market trends, rental yields, and appreciation potential based on current market values rather than appraised values. They want to know what properties they sell for and how quickly they move off the market.

Market value also helps investors identify opportunities. It might signal good buying opportunities when market values drop below appraised values. And when market values consistently exceed appraised values, it might indicate an overheated market where investors should proceed with caution.

Get Better guidance through the appraisal process

While you can't control market conditions or appraiser opinions, you can prepare for both scenarios and work with professionals who keep you informed throughout the process.

Better's mortgage platform provides transparency and support during appraisals, helping you understand what's happening and why. Better's technology and expertise help you get the best possible outcome for your unique situation. 

Start your pre-approval process today to see how Better can make your home financing journey smoother and more transparent.

Appraised value vs. market value FAQs

How can you enhance a property’s appraised value?

Making strategic improvements before the appraisal can potentially increase the value. Focus on repairs that affect safety and functionality first, like fixing leaky roofs or updating electrical systems. Fresh paint, clean landscaping, and decluttering can also make a positive impression on appraisers.

Provide the appraiser with information about recent improvements, neighborhood developments, or unique features that might not be obvious. You can't control market conditions, but you can point toward positive trends.

What is the difference between fair value and appraisal value?

Fair and appraisal values are similar concepts used in different contexts. Fair value is often used in accounting and financial reporting to represent the price that would be received to sell an asset. Appraisal value is specific to real estate and represents a professional appraiser's opinion of worth based on established methodologies.

Both aim to determine objective worth, but fair value might consider broader market factors and potential future earnings. Appraisal value focuses more on comparable sales and physical property characteristics.

How can I calculate market value?

You can estimate market value by researching recent sales of similar properties in your area, known as comparative market analysis (CMA). Look at homes with similar square footage, bedrooms, bathrooms, and lot sizes that have sold within the last 3–6 months. Online tools and real estate websites can provide this data, though real estate agents offer more detailed analyses.

Consider current market conditions, time on market for similar properties, and any unique features that might affect value. Remember that market value represents what buyers actually pay, so active listings (asking prices) are less reliable than recently completed sales.

...in as little as 3 minutes – no credit impact