What Is Appraised Value?
The appraised value of a property is the estimated amount a professional appraiser believes it is worth at a specific point in time. This number is determined by a licensed appraiser after reviewing the home or commercial real estate, considering things like location, size, condition, and recent sales of similar properties in the area. Appraisals are used for a variety of financial decisions, such as mortgage lending, real estate transactions, and refinancing.
Appraised value plays a key role in determining how much a lender will loan on a property. It helps protect both the buyer and the lender from overpaying. If the appraised value is lower than the purchase price, the lender may not provide the full loan amount, which can affect the deal.
Why Appraised Value Matters
Impact on Home Buying and Selling
When you’re buying a home, the appraised value helps ensure you’re paying a fair price. If you’re selling, it helps you set a realistic asking price. An appraisal that’s too low can hurt the sale, while a high appraisal might make it easier to close the deal quickly.
Influence on Loans and Refinancing
Banks and lenders use the appraised value to decide how much they’re willing to lend. For example, if you’re refinancing your mortgage, the lender will order a new appraisal. If the value has gone up, you may qualify for better loan terms. If it has dropped, you might not be able to refinance at all.
Property Taxes and Insurance
Local governments use assessed value (which is related to appraised value) to calculate property taxes. Insurance companies may also consider the appraised value when determining coverage amounts and premiums.
How Appraisers Determine Value
Factors Appraisers Consider
Professional appraisers look at many factors when determining a property’s value. These include:
- Location: Is the property in a desirable area? Are there good schools, shopping centers, and low crime rates?
- Size and Layout: Total square footage, number of bedrooms and bathrooms, and the overall floor plan.
- Condition: The age of the property, the state of the roof, plumbing, electrical systems, and overall upkeep.
- Comparable Sales (Comps): Recently sold homes in the same area that are similar in size and condition.
- Market Trends: Current trends in the real estate market, such as rising or falling home prices.
The Appraisal Process
An appraiser will usually visit the property to inspect both the inside and outside. They’ll take photos, measure square footage, and note any upgrades or issues. After gathering this information, they compare it to similar homes that have sold recently. Using a standardized process, they then produce a detailed report outlining the appraised value.
Appraised Value vs. Market Value
Appraised value and market value are related but not the same. The market value is what a buyer is willing to pay for a home in the current market. The appraised value is the estimate made by a professional based on set guidelines. In a hot market, buyers might pay more than the appraised value because of competition. In a slow market, the reverse can happen.
Understanding the difference can help buyers and sellers make informed decisions. Relying too heavily on either value can lead to issues during the transaction, especially if the appraisal comes in lower than expected.
What Happens if the Appraised Value Is Too Low?
For Buyers
If you’re buying a home and the appraisal comes in lower than the agreed price, your lender may not cover the full cost. That means you’ll have to pay the difference out of pocket or renegotiate with the seller. Sometimes, deals fall through because of a low appraisal.
For Sellers
A low appraisal can force a seller to lower their price to keep the deal moving. If they refuse, the buyer might back out unless they’re willing to pay the difference themselves. In competitive markets, buyers are sometimes willing to do this.
For Refinancing
If you’re refinancing, a low appraisal can stop the process altogether. You might not have enough equity in your home to qualify for a new loan. In this case, improving your home or waiting for the market to improve might be your best option.
Tips to Improve Appraised Value
Boost Curb Appeal
First impressions matter. Mowing the lawn, trimming bushes, planting flowers, and painting the front door can all help.
Make Small Repairs
Fix leaky faucets, cracked tiles, squeaky doors, or peeling paint. These minor improvements can make a big difference.
Clean and Declutter
A clean, organized space looks better and makes it easier for the appraiser to see the home’s true condition.
Highlight Upgrades
If you’ve recently added a new roof, upgraded appliances, or remodeled a bathroom, be sure to point it out. Provide receipts or documentation if you can.
Provide Comparable Sales
If you know of similar homes in your area that have sold for a good price, share this information with the appraiser. It can help support your case for a higher valuation.
Final Thoughts on Appraised Value
The appraised value is an important figure in any real estate transaction. It impacts buying, selling, refinancing, and even your property taxes. While you can’t control every aspect of the appraisal process, knowing what affects the value can help you prepare and potentially increase your property’s worth.
Whether you’re a buyer, seller, or homeowner looking to refinance, understanding appraised value puts you in a stronger position. With this knowledge, you can make smarter financial decisions and avoid surprises along the way.
