What’s the true value of my home?

What’s the true value of my home?

Hey, it’s me Kati! In the world of real estate, where the stakes are high and emotions often run wild, understanding the concepts of appraised value and market value can make all the difference in a successful transaction. In this article, we’ll unravel the mysteries behind these two critical terms, shedding light on what they mean and why they matter.

Appraised Value: A Reality Check

Imagine this scenario: You’re a homeowner, thrilled to receive an offer on your house for $800,000. Excitement fills the air, and visions of a lucrative deal dance in your head. However, before you start counting your earnings, you need to be aware of the appraised value.

Appraised value is the figure assigned to your property by a licensed appraiser. This professional assesses your home’s worth objectively, devoid of any emotional attachment or personal bias. The primary purpose of the appraised value is to inform the lender (usually a bank) of the property’s true market value.

Why does the lender need to know? Because they will only provide a mortgage loan based on a percentage of the appraised value. If the lender agrees to lend a substantial amount based on an inflated sale price, they risk being in a precarious situation later. In case the borrower defaults on the loan and the bank needs to sell the property, they may struggle to recover their investment.

This was precisely the issue that led to the housing market crash in 2008, known as the mortgage crisis. Home values had been artificially inflated, and when the market corrected itself, many homeowners found themselves “underwater,” owing more on their mortgages than their homes were worth.

So, the appraiser’s role is crucial. They evaluate your property based on objective criteria, such as square footage, age, number of bedrooms, number of bathrooms, location, yard size, and garage, and then compare these attributes to recently sold properties in your vicinity (usually within the last 3 to 6 months). This process ensures an apples-to-apples comparison and determines the appraised value of your home.

Market Value: What Buyers Are Willing to Pay

While appraised value relies on objective data and recent sales comparisons, market value is a more elusive concept. Market value is determined by what buyers are willing to pay for your property, and it often takes subjective factors into account.

Suppose you have a house with a less-than-ideal layout but it’s been beautifully updated. In this case, the market value may be lower than the appraised value because buyers aren’t willing to pay a premium for an awkward layout, despite the attractive updates.

Market value is influenced by factors like your home’s curb appeal, layout, location, and overall condition. It can also be impacted by current market conditions. If the real estate market in your area is booming, you might fetch a higher market value than the appraised value. Conversely, in a sluggish market, you may have to settle for less.

To summarize, appraised value provides a solid, objective benchmark for your home’s worth, while market value is a dynamic, ever-changing figure influenced by buyer preferences, property condition, and market conditions.

Navigating the Two Values

When you’re selling your home, it’s crucial to understand both the appraised value and market value. Your real estate agent will typically provide you with an estimate based on the appraised value, but market value can vary.

If the market value exceeds the appraised value, you may receive offers from buyers willing to pay more. However, if the appraised value falls short of the market value, securing financing for the higher price may be challenging.

To navigate this complex terrain, you can do some research on your own. Analyze recent sales in your neighborhood, objectively comparing your property to others in terms of size, condition, and location. This will give you a clearer picture of your home’s appraised and potential market values.

Remember, it’s never too early to consult with a real estate agent. They can help you determine both values, assess market conditions, and provide valuable insights to ensure you make informed decisions.

In the world of real estate, understanding the distinction between appraised and market value is like wielding a powerful compass—it guides you through the complex landscape of buying and selling property. So, whether you’re a homeowner looking to sell or a prospective buyer, these insights will equip you to navigate the real estate market with confidence.