Appraised Value

An appraised value is an unbiased professional opinion of a property's fair market value. It is determined by a licensed or certified appraiser who considers various factors that affect the property's value, including:

• Location: Properties in desirable locations with good access to amenities tend to have higher appraised values.

• Property condition: The overall condition of the property, including its age, square footage, number of bedrooms and bathrooms, structural integrity, and the condition of the mechanical systems (such as plumbing, heating, and electrical) will all be factored into the appraised value.

• Recent sales of comparable properties: Appraisers will consider the recent selling prices of similar properties in the area, also known as "comps." This helps to determine the current market value for similar properties.

• Replacement cost: In some cases, the appraised value of a property may be based on the estimated cost of replacing the property with a new one of similar size and quality.

The difference between appraised value and market value

It's important to distinguish between appraised value and market value. The appraised value is an unbiased professional opinion of a property's value, while the market value is the price a buyer is willing to pay and a seller is willing to accept. The market value can be influenced by factors that the appraiser may not consider, such as emotional attachment or motivated sellers.

How appraised value is used

The appraised value is most commonly used by lenders to determine how much money to loan a buyer for a mortgage. The loan amount is typically based on a percentage of the appraised value,  which helps to ensure that the borrower has enough equity in the property to cover the loan in case of default.

Factors that can affect the appraised value of a property

There are a number of factors that can affect the appraised value of a property, including:

• Market conditions: The overall health of the real estate market can affect appraised values. In a strong seller's market, appraised values may be higher than in a buyer's market.

• Property taxes: High property taxes can lower the appraised value of a property.

• Zoning restrictions: Zoning restrictions can limit the potential use of a property, which can affect its appraised value.

How to get an appraisal

If you are considering buying or selling a property, it is a good idea to get an appraisal. This will give you a better idea of the property's fair market value. You can find a qualified appraiser by contacting your local real estate agent or lender.

Delving Deeper: Bank Appraisals vs. Tax Appraisals

While both bank appraisals and tax appraisals estimate a property's value, their purposes and processes differ significantly. Here's a breakdown to help you understand them better:

Bank Appraisals:

• Purpose: Solely focused on determining the property's market value for mortgage lending purposes.

• Who Orders It: The lender (bank or mortgage company) commissions and pays for the appraisal.

• Focus: Primarily considers comparable properties ("comps") in the vicinity that have recently sold.

• Scope: Leans towards a conservative estimate to mitigate risk for the lender. Appraisers may not spend extensive time inspecting the property or considering unique features.

• Flexibility: Lenders often have a network of appraisers they work with, limiting your choice.

• Outcome: The appraised value directly impacts the maximum loan amount the borrower can qualify for. If the appraised value is lower than the purchase price, the buyer may need to come up with a larger down payment or renegotiate the purchase price.

Tax Appraisals:

• Purpose: Estimate a property's fair market value for property tax purposes. This value is used by local governments to determine the amount of property tax owed by the owner.

• Who Orders It: The appraisal is typically not commissioned by anyone. The government uses its own data and methods for assessment.

• Focus: Considers various factors beyond just recent sales data, such as property size, age, location, and overall condition.

• Scope: Aims for a more generalized value that reflects the property's worth for tax purposes. May not involve a physical inspection of the property.

• Flexibility: You don't have a say in the appraiser, but you can appeal the assessed value if you believe it's inaccurate.

• Outcome: A higher appraised value translates to higher property taxes. A successful appeal can lead to a lower tax burden.