If you are in the search for a home, you might encounter the terms market value and appraised value while perusing the listings. Knowing how these terms affect things like selling price, property taxes, homeowners' insurance, and more are a vital part of the home-buying process. Read on to learn more about these two terms and be ready to snag a deal on your dream home.
When you find a home listed at a certain price, you are probably looking at the market value. This is an estimate (and the market value prices are always estimates) of what the home might fetch given the state of the real estate market at this time. When you consider market value, you are not necessarily looking at what the seller wants to get for the home but the amount they have been advised by the real estate agent to price the home. Many "for sale by owner" homes are burdened with prices that are based not on a professional evaluation but on the emotions or financial needs of the seller. This manner of pricing homes might produce a bargain for a buyer, but it often means a home that sits on the market for far too long due to a price that is out-of-line with other similar properties.
When it comes to assigning a market value to a home, it's all about comps, or pricing based on comparisons to other homes. Luckily, you won't need to perform the difficult work of wading through recent home sales to find out what the market value for a home might be. With the offer price being based on the comps, your real estate agent should be able to locate some homes in the same area of town that has some of the same features as the home you are considering. Comps look at things like:
- Completed purchase prices for homes in the same neighborhood, school district, town, area, etc.
- Homes sold within a certain time frame. The real estate market can fluctuate so the more recent the sales, the more accurate the comp.
- Square footage and lot size.
- Features within the home, such as remodeling work, updated kitchens and baths, pools, and more.
Once you've made an offer on a home, a professional appraisal is in order. Appraisers take into account some of the same factors as market value comps do but are far more precise measurements of value than the market value. Most lenders require an appraisal before they will approve lending for a buyer, so the dollar amount of the home you are considering should cost more than the appraised value. In many areas, the appraisal is performed at the lender's behest, but you will end paying the appraisal cost at the closing unless the seller agrees to cover that cost. In addition to the above market value factors, an appraisal will review:
- The age of the home.
- The number of bedrooms and bathrooms.
- Outbuildings such as storage rooms and separate garages.
- Recent additions to the home.
If you wish to learn more about these two home value designations, speak to your realtor.Share