Home  >>  Write  >>  Real Estate  >>  Selling Real Estate  >>  Property Appraisal and Market Value


Property Appraisal and Market Value

One of the most important things in association with real estate is determining the ‘true worth’ or ‘value’ of your property.  The two main ways that one can determine this is through property appraisals and comparable market value analysis.  Typically, these two methods are used in conjunction with one another in order to establish a sale price for the seller and/or offer proposal for the buyer. 

A common misconception for many people is their belief that the market value of your property is identical to the appraised value.  Just like a home inspector is not the same as an appraiser, the same is true for market value and appraisal value.  They are not the same.

Property Appraisal

An appraisal essentially gives value to your property.  Qualified, experienced, and certified appraisers, who preferably are members of the National Association of Real Estate Appraisers, should conduct property appraisals.  Members of this association follow the same professional code of ethics.  Becoming an appraiser is not as easy as you would think since federal laws require states to establish minimum standards and licensing practices for real estate appraisers.

Appraisals can be carried out for a number of reasons, but normally they are performed at the request of a buyer who is seeking to secure a loan from a bank or loan company, to purchase the property.  All banks and loan companies require a certified valuation of a property before they can process a loan application.  Thus an appraisal provides valuable information for either the buyer and/or seller, however the appraisers primary assignment is to guard the lender. 

The appraiser will then conduct a comprehensive and thorough examination of your property and they use their own expert opinion, judgment, and experience to determine its value in monetary terms.  The appraised value of a property can vary based on the appraiser’s own sense of value, so it is of paramount importance to use an appraiser with considerable insider know-how and extensive experience in determining a ‘true value’.  This can become a philosophical discussion as to what is ‘true’ though. 

To arrive at their valuation the appraiser will use a multitude of methods that are available to them.  These methods include some of the following items:

Property size - The size (height, width) and the square footage of the property are important considerations.  Obviously, the larger the house, the more it is worth, however size and value are not directly proportional to one another.  Property size is also an important determinant when used in comparing your property to others that are on sale on the real estate market.

Condition of the home - The condition of the property is important factor in determining its value.  If the property is a dwelling unit (house, townhouse, condominium, cottage, etc.), many aspects including the water systems, electrical systems, insulation, sewage system, and any other items are also assessed.  A home that is run down will logically not produce a large value compared to a home in good condition.  The appraiser, during the valuation, will note all faults and repairs that need carrying out.  A home inspector can also assess the property for a more detailed analysis on the condition of the property.  Should your house have undergone any renovations or repairs these will influence the appraisers decision on the overall value of your house.

Neighborhood environment - Where your property is situated is important.  Location often will be one of the most influential factors in determining the property’s value.  No one wants to live in a run down area of a city or town, or one filled with a high crime rate.  Because of this, properties that are in ‘poor’ neighborhoods will have lower value compared to similar houses in ‘good’ neighborhoods.

Comparable local sales - Comparing sales of properties in the area, i.e. ones similar in size and look to your own, can provide an accurate guide to the market value of your own property.  This can influence the overall price that the appraiser sets to your property.

Sales performance and indices that forecast future value - By having a better idea of sales performance of properties in the area and indices that forecast the potential value of properties in the future in the area, the appraiser will gain a better understanding of the current market conditions.  This information will assist the appraiser in generating an accurate valuation of your property, so that it will sell for the right price, at the right time.

Location proximity to desirable schools and services – It is well known that properties in close proximity to schools are more valuable since most buyers are families, these people would probably wish for a property that will be as close to a good school as possible, for that children’s sake.  The appraiser will look at the location of your property and decide how the local schools and infrastructure will affect your property valuation.

Appraiser’s Experience - The appraisers own experience can play a huge factor in the final valuation of your property.  Their track record and knowledge of the industry is vital to coming to the right price for your home to list at.

The appraised value that you are left with will be contained in the appraisers report, which is essentially is a certified appraiser’s opinion of the worth of a home at that particular point in time.  For most people, this report is essential in obtaining a loan from a lender since lenders are more likely to offer a loan to a person who can produce a document showing the value of their prospective property.

Because an appraisal is a professional estimate the service is not free.  The cost of an appraisal is dependent on the value of the home.  Generally, you can expect to pay around $300 for a house that is valued at $250,000.

Market Value

Market value is similar to an appraisal, but it differs because a certified property appraiser does not carry it out.  In most cases, market value is determined by a real estate professional – be it an agent, realtor, or broker.  The market value refers to how much your house is worth, compared to similar houses of similar specifications, in and around the area the property’s location.  Essentially, the market value is the price that the house would fetch if it were sold at that given point in time.

Market value can be a tricky concept to explain regarding any products particularly when applied to real estate.  In real estate, market value is the price in which a particular property will sell within 30 to 90 days (the general timeframe of how long it takes to sell a property) based on its current condition.  The market value of a property is highly influenced not only on the property’s condition, but also the current real estate market climate, the location of the property, the time of year that the property is on sale, and how urgently the owner wants to sell their home.

Determining a house’s market value is an inexact science, as the only true way to determine a house’s market value is to look at the figure in which that house is sold for.

There are many ways to decide the market value of your house, but the most common approach is by comparing your property to other similar properties in and around the same area in the Multiple Listing Service (MLS).  This is known as Comparative Market Analysis (CMA).  Performing a comparable market analysis can help you to get a better perspective of the market value of your property.

A real estate agent, realtor, or broker usually performs a comparative market analysis.  They will evaluate sales of equivalent properties to generate an informal estimate of your property’s market value.  A good estimate of the market value of your home is important when you are selling your home as it will produce a figure that you can work with when setting the initial sale price of your property.

Using the market value in conjunction with appraised value, the value that is determined by a certified appraiser will provide an accurate value for an initial sale price, since both the market and appraised value have usually considered the same factors (location, property condition, current real estate trends, and seller’s urgency) when determining value.