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Both market value and appraised value are utilized in the sale of residential homes, commercial property, retail buildings, farms and land. However, there are notable differences between market value and appraised value. Most simply put, the market value is what a buyer is willing to pay for a particular home and appraised value is what the home is worth based on comparison to similar recent sales and listings. Appraised values are based on data gathered by the appraiser and his or her professional judgment. The market value can vary much more than the appraised value. Unlike the appraised value, buyers have direct influence over the market value of a property because a property is only worth what a buyer is willing to pay.
Let's look at an example of how these two values differ. A seller lists their property for $300,000. The buyer offers the seller $270,000. The seller accepts the buyer's offer. Who decides what the property is really worth? According to the buyer and the seller, the market value of that particular property is the agreed upon $270,000 price. However, bank financing is involved, so an appraiser is brought in to establish the appraised value. The appraiser takes in to consideration the recent sales and listings of comparable properties in the neighborhood, the features and functionality of the home, the condition of the home and a number of other details. Based on this comparison, the appraiser decides that the property is worth $280,000. The appraised value is the one that the bank will use for it's lending purposes. The appraiser's opinion is unbiased, as he or she is not representing the buyer's or the seller's interests. The appraised value; however, is not necessarily the amount that the property will sell for. Buyers and sellers, such as in our example, may agree to a price that is less than the appraised value.
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Though most properties sell for at or below appraised value, some buyers may be willing to pay more for a home or property when there are multiple buyers making offers on the property, the transaction includes personal property such as furniture, maintenance equipment or even vehicles, or there is no lender involved in the transaction and the parties agree to a higher price. A specific buyer may also be willing to overlook such external factors as railroad tracks, a busy street location or dilapidated neighboring home because he/she places more value on the better features of the home. The actions of a particular buyer don't always reflect the actions of a typical buyer, which is why lenders rely on an appraiser's opinion of value.
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Posted in Publishing and Printing Post Date 02/11/2015