Appraised vs. Market Value: What’s the Difference?

Disclaimer: PropStream does not offer investing advice or make profit promises. This article is for educational purposes only. We recommend consulting financial and legal professionals and/or doing your due diligence before investing in real estate.

As a real estate investor, knowing how to value a property is an essential skill. After all, you can’t spot a good deal—whether you’re buying or selling—without first knowing how much a property is actually worth. 

But here’s the catch: Real estate doesn’t have just one true value. The industry distinguishes between market value and appraised value, which often aren’t the same. Read on to learn the key differences between the two so you can make better investment decisions.

Appraised Value vs. Market Value

The appraised value is the value assigned to a property by a state-licensed appraiser at a specific point in time. It’s typically ordered by lenders who need to know a property’s worth before accepting it as collateral on a loan.

In contrast, market value is the price a property would sell for in an open market. It’s much more responsive to real-time changes in housing supply and demand. As a result, it’s often higher or lower than the appraised value.

Appraised Value Explained

When an appraiser values a property, they typically look at:

• Location: The neighborhood, school district, and proximity to jobs and amenities all impact the appraised value.
• Square footage: Larger homes tend to have higher appraised values.
• Number of bedrooms and bathrooms: More bedrooms and bathrooms raise the appraised value.
• Condition: Well-maintained homes with fewer repair needs tend to appraise higher.
• Construction quality: Higher-quality materials and craftsmanship can boost appraised value.
• Year built: Newer homes often appraise higher, but historical significance can also add value.
• Renovation history: Major upgrades (e.g., to kitchens and bathrooms) can raise the appraised value.
• Amenities and upgrades: Unique features like pools or luxury finishes can enhance the appraised value.

These qualities are compared against similar recently sold properties nearby to arrive at an estimated value. This is called the comparison approach.

However, sometimes appraisers also use the cost approach, which weighs the cost of constructing the home in question, less any estimated depreciation, plus the value of the land. Alternatively, if the property has multiple living units, appraisers may use the income approach, which weighs the amount of rental income a property can generate.

Market Value Explained

Unlike appraised value, market value isn’t set by any one party. It’s simply the price buyers are willing to pay for a property in a competitive market. While buyers are influenced by many of the same factors that determine the appraised value, they are also sensitive to:

• Mortgage rates: Lower rates make borrowing cheaper, raising buyer demand and market value.
• Local market trends: Whether it’s a buyer’s or seller’s market influences how much buyers are willing to pay.
• Consumer inflation: Rising prices across goods and services often drive higher housing costs, too.
• Emotional attachments to homes: Buyers may pay more for homes they have an emotional connection to.
• Seasonal buying patterns: Demand typically rises in spring and summer, boosting market values.
• Inventory levels: Low inventory raises competition, often driving up market values.
• Buyer preference trends: Popular styles, layouts, and features—like open floor plans or home offices—can command higher market values.

Ultimately, market value is set when a willing buyer and seller—both acting in their best interest and without outside pressure—agree on a price and finalize the sale.

Bonus: Assessed Value Explained

The assessed value is the value a local tax assessor places on a property. Since property taxes are a top revenue source for city governments, they periodically assess property values to ensure they levy taxes properly. The assessment often involves tracking historical property data, reviewing home inspection reports, and performing a comparative market analysis (CMA).

Why Investors Must Understand the Difference

Understanding how appraised and market values differ can make you a better investor.

For example, the appraised value affects how much you can borrow from a lender. If you suspect an appraised value is off, you can request a second review to potentially increase your financing budget. Similarly, knowing a property’s market value can help you assess whether you’re overpaying or securing a deal.

What to Do When Appraised Value and Market Value Differ

More often than not, a property’s appraised value and its market value won’t match. The difference can be confusing, but it can also present valuable opportunities.

For example, if a hot seller’s market drives the market price higher than the appraised value, it could be a good time to sell and maximize your profit before market prices settle. Alternatively, if you’re the buyer, you could use the appraised value to negotiate down the market price.

Ultimately, any discrepancy between the two values can help you assess markets, time purchases and sales, and evaluate a property’s long-term investment potential.

Common Misconceptions About Appraised Value and Market Value

That said, don’t fall for these myths about appraised value and market value:

• That one value is better than the other: Appraised and market values both have their place in real estate. The trick is to use them strategically and in their proper context.
• That appraised value is always accurate: Appraisals are prone to human error. If you suspect there might be a mistake, get a second opinion.
• That appraised value is the same as assessed value: Assessed value is determined by a tax assessor in a separate process from an appraisal.
• That market value is the same as the list price: Sellers can ask any price they want, but market value is what a buyer is actually willing to pay.

Use PropStream to Perform Vital Property Valuations

Not sure where to start? Use PropStream to estimate a property’s baseline value quickly! Our database of over 160 million properties nationwide aggregates data from multiple listing services (MLS), public records, and other sources to help you quickly find and analyze deals.

You can also use PropStream Intelligence™ to filter your search results by property condition, foreclosure status, estimated wholesale value, and more.