Appraised Value: Understanding How Appraised Value Works

The appraised value of a home is its estimated value determined by a licensed appraiser, decided by inspecting the property and comparing it to other comparable properties. An appraisal is important for a mortgage lender—like a bank or a mortgage broker—to determine the value of the property that a borrower currently owns or is trying to buy. This process ensures that the bank loan matches the value of the house. Common reasons for ordering a home appraisal include refinancing a home’s mortgage or securing a loan to buy a house. You might need a bank loan to help pay your mortgage or contribute to the down payment of a house.

Private mortgage lenders usually require a home appraisal to weigh the home’s value against the size of the loan to the homebuyer. Federal institutions like the Federal Housing Administration (FHA) or the US Department of Veteran’s Affairs also provide home loans, which require home appraisals as part of the application process.

A third-party appraiser determines the appraised value of a house to protect the lender from loaning too much money to the homebuyer or homeowner. The appraisal value also informs home buyers whether they are paying more than the property is worth.

The market value of a property refers to the expected selling price of a home in the current market conditions. The market value estimates what buyers will be willing to pay in any given real estate market, which may be below or above the list price or asking price that the sellers want for the home. Fair market prices are not fixed because the market fluctuates. A home appraisal is an attempt to get the most accurate picture of the fair market value of a home.

The assessed value and the appraised value of a home are often confused, but the difference between the two is simple. Appraised value refers to the dollar estimate that a licensed appraiser assigns to a home after they have internally and externally inspected it and compared it with similar properties. It will determine the amount of money that a lender will grant to those looking to buy a home or refinance their mortgage.

The assessed value is the estimated value that a local municipality will assign to a house based on its location, curb appeal, and size. The assessed value will determine the amount of property tax that the homeowner pays.

To appraise a home, the homeowner hires a third-party home appraiser to run an appraisal report of a home by inspecting and assessing the property. A property assessment is similar to a home inspection, but an appraiser will additionally take the sales prices of comparable homes—or comps—into account.

To determine the value of the property against similar homes, an appraiser assesses the following:

• Square footage
• The physical condition of a home (including appearance, cracks, water damage)
• The structural integrity of the home
• Quality of landscaping around the home
• The number of bedrooms and bathrooms in the home
• Any amenities or renovations like fireplaces, swimming pools, lighting, plumbing, and finishes such as hardwood floors or marble countertops

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