The median sales price of US houses is $412,300 these past few months of 2024. Did you know that? So, let's say you're selling your home, and someone comes along and says, "This place is worth $430,000." Is that the final word? Not really! When it comes to buying, selling, or refinancing a home, you'll hear two main terms thrown around a lot: home market value and appraised value.
But what do they really mean? And do they impact your property? If so, How?
This can be a big deal because understanding the difference could save you some serious cash... or even help you get the best deal when selling your home. Here's how it all works.
What is home market value?
Home market value is basically what people are willing to pay for your home at a given time. It's the price a buyer will pay in the current market. This can depend on a lot of things—location, neighborhood trends, how well homes in your area are selling, and.... even the season (!) Think of it as what the 'market' (aka the people out there buying homes) decides your home is worth.
It's like selling anything else. Let's say you've got a used car. It's a good car and runs well, but at the end of the day, it's worth what someone is willing to pay for it. Same deal with a house. Home market value by zip code fluctuates based on supply and demand and obviously…the location is a big factor in this equation. If buyers are hot for homes in your area, they might pay top dollar. If not, you could struggle to sell or need to lower your asking price.
This value can shift fast (depending on the economy or housing trends.) Maybe one day your neighborhood is the hottest spot in town, and the next day, a new development nearby steals the spotlight.
The home appraised value is a formal opinion
Now... while home market value is what a buyer is willing to pay, appraised value is something a bit different. It's determined by a professional appraiser who looks at several factors—like the condition of your home, its location, and comparable sales in your area (otherwise known as "comps"). This is more of a formal process. The appraiser comes in and does their homework.
Appraisers are trained to be objective, so they don't care what you think your house is worth. They look at facts, like square footage, age of the home, upgrades, the roof, the plumbing, etc. They also look at what similar homes nearby have sold for recently.
Here's where things can get interesting (and sometimes a little stressful).
Your appraised value and home market value might not always match up
Home market value > appraised value
Let's say the home appraised value is $500,000, but the home market value is $550,000 because there's a lot of buyer interest. That's great, right? No. At least, not every time.
So, how does this impact your property? You probably upgraded your kitchen, your bathroom(s) or made your home smart, and your home's market value has gone up. That's great!
But if an appraiser comes in and doesn't view those upgrades as highly as the market does, your appraised value could be lower. And that gap? It can affect how much buyers are willing to offer and how much financing you or your buyers can get.
If the buyer's financing the purchase, the bank will only loan based on the appraised value, not what the buyer is willing to pay.
This gap between home market value and appraised value can lead to some negotiation. The buyer might ask you to lower your price, or you could hold your ground, hoping they'll cover the difference themselves. Either way, understanding both values can help you make smart moves.
Home market value < home appraised value
On the other side -if your home appraises for more than what someone's willing to pay, it might be time to rethink your price. You probably will have to understand that market conditions might not be in your favor right now.
So, here comes the million-dollar question: Can you influence your appraised value? The answer is: kind of.
As mentioned, you would think that small upgrades and home improvements can help, but (usually) appraisers are more focused on the bones of your home than the... "cosmetics."
So, while a fresh coat of paint or a modern bathroom might boost the market value, an appraiser is more interested in the structural integrity, square footage, and condition of major systems (say: plumbing, heating, and roofing.)
If you're hoping for a higher appraisal, focus on:
Fixing any issues with the home's foundation or structure.
Upgrading old electrical or plumbing systems.
Ensuring the roof, windows, and siding are in good shape
The balance between both these values
At the end of the day, both the appraised value and home market value by zip code (but not only limited to that) do matter.
Market value →What the buyer is willing to pay.
Appraised value → What a bank thinks your home is worth (based on data.)
It's good to know these values even if you are the buyer or the seller.
If you're selling, knowing both values can help you price your home competitively without over- or underestimating its worth.
If you're buying, it can help you prepare for possible financing challenges. And if you're refinancing, a solid appraisal could unlock the financial flexibility you're after.
The trick is understanding that while the market may be hot, the appraisal brings everyone back down to reality.
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