Appraised Value

Definition

Appraised Value refers to the professional estimate of a property’s market value, conducted by a licensed appraiser. This valuation is typically requested by lenders during the home-buying process to ensure the mortgage loan amount does not exceed the property’s true value. The appraisal considers numerous factors including location, condition, amenities, and recent sales of similar properties in the vicinity.

Examples

Market Value: The most probable selling price of a property in an open and competitive market.
Insurable Value: The amount of coverage required to replace a property in the case of a total loss.
Most Probable Sales Price: The price at which a property would most likely sell under current market conditions.

Frequently Asked Questions (FAQs)

1. Why is an appraised value necessary?

An appraised value is required by lenders to ensure the loan amount does not exceed the value of the property, protecting the lender’s investment.

2. Who conducts the appraisal for the appraised value?

A licensed or certified appraiser, who is impartial and knowledgeable about local market conditions, conducts the appraisal.

3. How is the appraised value different from the market value?

Appraised value is an expert estimate required for mortgage approval, whereas market value is the potential selling price a property might fetch in the open market.

4. What happens if the appraised value is lower than the purchase price?

If the appraised value falls below the purchase price, buyers may need to renegotiate the sale price, provide a larger down payment, or potentially walk away from the deal.

5. Can the appraised value vary from one appraiser to another?

Yes, appraised values can differ slightly based on each appraiser’s judgment, methodology, and interpretation of comparable market data.

Appraisal: The process by which the appraised value is determined.
Market Value: The price at which an asset would trade in a competitive auction setting.
Comparative Market Analysis (CMA): An analysis performed by a real estate agent to estimate a property’s market value using comparables.
Assessment: A value assigned by the local government for property tax purposes.
Fair Market Value (FMV): The price at which an asset would sell under typical market conditions.

Online Resources

References

“The Appraisal of Real Estate” by the Appraisal Institute
“Real Estate Appraisal” by Richard M. Betts and Silvia M. Easley
“Fundamentals of Real Estate Appraisal” by William L. Ventolo and Martha R. Williams

Suggested Books for Further Studies

“The Student Handbook to Real Estate Appraisal” by Mark Long
“Appraising Residential Properties” by the Appraisal Institute
“Mastering Real Estate Appraisal” by Dennis H. Carr, Jr. & RETA Inc.
“Fundamentals of Real Estate Appraisal” by William L. Ventolo, Martha R. Williams, and Cateetz.

Real Estate Basics: Appraised Value Fundamentals Quiz

### What is the purpose of an appraised value in real estate transactions? - [x] To estimate the market value of the property for lender underwriting. - [ ] To determine the property's rental value. - [ ] To assess property tax values. - [ ] To set a price for home insurance policies. > **Explanation:** The primary purpose of an appraised value is to estimate the property's worth, ensuring that the mortgage loan amount aligns with the property's market value. ### Who typically requests the appraisal for determining appraised value? - [ ] The buyer - [ ] The seller - [x] The lender - [ ] The real estate agent > **Explanation:** Lenders request the appraisal to ensure the loan amount being offered is secure and backed by the actual value of the property. ### What type of professional conducts an appraisal? - [ ] Real estate agent - [x] Licensed or certified appraiser - [ ] Mortgage broker - [ ] Property manager > **Explanation:** A licensed or certified appraiser, who possesses the necessary qualifications and local market knowledge, conducts the appraisal. ### What happens if the appraised value is less than the purchase price? - [ ] The deal automatically falls through. - [x] The buyer may renegotiate the price, provide more down payment, or cancel the sale. - [ ] The buyer pays the difference out-of-pocket automatically. - [ ] The seller must fix all identified problems in the appraisal report. > **Explanation:** If the appraised value is lower than the purchase price, buyers and sellers typically renegotiate terms, adjust down payment, or decide to end the deal. ### When is an appraiser likely to adjust the property’s appraised value? - [x] When additional accurate market data or comparables are provided and verified. - [ ] When the real estate agent insists on a higher value. - [ ] When the buyer requires an increase for mortgage terms. - [ ] When requested by the property's previous owner. > **Explanation:** An appraiser may adjust the appraised value when credible and verifiable additional data or comparables influence the earlier findings. ### Which is not a factor considered during a home appraisal? - [ ] Location - [ ] Condition of the house - [x] The seller’s asking price - [ ] Recent sales of similar homes > **Explanation:** The seller’s asking price is not a factor assessed; the appraisal focuses on objective data like location, condition, and comparables. ### Which term relates closely to determining the appraised value? - [ ] Mortgage insurance - [x] Comparative market analysis (CMA) - [ ] Escrow - [ ] Homeowners' association fees > **Explanation:** A Comparative Market Analysis (CMA) closely relates to appraisals as it involves similar assessment techniques of recent sales and comparables. ### Can appraised values vary between different appraisers? - [x] Yes - [ ] No > **Explanation:** Yes, since appraisals involve a level of professional judgment and interpretation of market data, results may vary slightly between appraisers. ### What document establishes the appraised value? - [x] Appraisal report - [ ] Purchase agreement - [ ] Property deed - [ ] Listing agreement > **Explanation:** The appraisal report compiled by the appraiser details and establishes the appraised value based on the property's evaluation. ### Why might the appraised value be higher than the tax assessment value? - [ ] Due to frequent changes in tax laws. - [x] Tax assessments can be outdated or use different criteria. - [ ] Because appraisers don’t consider property taxes. - [ ] To facilitate higher mortgage loans. > **Explanation:** Tax assessments might not reflect current market conditions as they can be outdated and rely on varied criteria not only aligned with current market-based appraised values.