Why is Appraised Value Lower Than Market Value?

South Shore MA real estate market

A Deep Dive into Home Valuation vs Appraisal

Understanding the complexities of real estate can be daunting task, especially when it comes to home valuation vs appraisal. One common question that often arises is – why is the appraised value lower than the market value? To answer this question, delve into the nuances of property valuation and appraisal.

Understanding Home Valuation and Appraisal

What are the differences between these two terms?

Home valuation determines the current worth of a property based on factors like its location, size, condition, and recent sales of similar properties in the area. Typically, a real estate agent or a professional valuer creates this. Many times, it serves as a starting point for setting a listing price.

why is appraisal lower than home valuation

On the other hand, an appraisal is an unbiased estimate of a home’s value. A certified appraiser conducts this process. An appraisal is an in-depth examination of both interior and exterior aspects of the property as well as market trends and comparable sales in the area. Lenders typically require an appraisal before approving a mortgage loan. This process ensures that they are not lending more money than what the property is worth.

Factors Influencing Home Valuation vs Appraisal

Several factors can contribute to discrepancies between home valuation and appraisal. These include:

Market Fluctuations

Real estate markets are dynamic and constantly changing due to supply and demand factors. A home’s market value can rise or fall depending on these fluctuations. However, an appraised value tends to be more stable as it is based on historical data such as past sales prices for similar properties in the same area. It also depends on the local market. For instance the South Shore MA real estate market is far different than markets in other parts of the country.

home valuation vs appraisals

Emotional Bias

Home valuations can sometimes be influenced by emotional bias from either buyers or sellers who may overestimate or underestimate a property’s worth based on personal feelings or perceptions. On the other hand, impartial professionals conduct appraisals and use objective criteria to determine a home’s value.

Property Condition

While both home valuation and appraisal take into account the condition of the property, an appraiser’s assessment is typically more thorough. They consider factors such as structural issues, quality of construction, and necessary repairs which may not be immediately apparent during a home valuation.

Why is Appraised Value Lower Than Market Value?

We covered the differences between home valuation and appraisal. Now, for the main question – why is appraised value often lower than market value?

One reason could be a rapidly rising market. If property prices are increasing quickly in a particular area, recent sales data may not reflect this trend accurately. As appraisers rely heavily on past sales data for their estimates, they might undervalue properties in such markets.

Another reason could be overpricing by sellers. Sometimes homeowners set unrealistic asking prices based on emotional attachment to their property or misinterpretation of market trends. In such cases, an appraisal can serve as a reality check.

Lastly, appraisers must provide a conservative estimate of a property’s worth. This protects lenders from potential losses in case of default. Therefore, they tend to err on the side of caution when determining a property’s value.

South Shore MA real estate market

Home Valuation vs Appraisal

Understanding the difference between home valuation and appraisal can help homeowners navigate the real estate market more effectively. While both processes aim to determine a property’s worth, they serve different purposes and can yield different results.

Remember that an appraisal provides an unbiased estimate of your home’s value and protects both you and your lender from overpaying or underlending. On the other hand, a home valuation gives you an idea of what price your property might fetch in the current market.

In conclusion, don’t be alarmed if your home’s appraised value comes in lower than its market value. It’s not necessarily a bad thing and it doesn’t mean you won’t be able to sell your property at the price you want. It’s just a part of the complex world of real estate valuation.In fact, the best thing you can do before putting your home on the market, is to hire a local real estate professional who understand market conditions specific to your home.