Appraised Value

What Is an Appraised Value?

An appraised value is an evaluation of a property's value based on a given point in time. The evaluation is performed by a professional appraiser during the mortgage origination process. The appraiser is usually chosen by the lender but the appraisal is paid for by the borrower.

Appraised value may not correspond to an asset's or property's market value.

Understanding Appraised Values

The appraised value of a home is an important factor in the loan underwriting process and plays a role in determining how much money may be borrowed and under what terms. For example, the loan to value (LTV) ratio is based on the appraised value.

In general, if the LTV is greater than 80%, the lender will require the borrower to buy private mortgage insurance. If the LTV drops to 78% upon a new appraisal, private mortgage insurance payments may be eliminated.

The appraised value may or may not correspond to the actual market value, or selling price of a home or other asset. Indeed, a home may sell for above appraised value if there is a bidding war or the real estate market in an area is hot.

The Role Appraised Value Takes in Real Estate

The appraised value of a property can differ from the market value and even an agreed upon purchase price for a home. The market value for a property is the price that buyers are willing to pay to purchase real estate. For example, a buyer might offer $225,000 for a home that the seller marketed at $240,000. This could lead to negotiations between the seller and buyers with a potential compromise price somewhere in-between.

Those price levels could still differ from the appraised value that the lender will use to determine how much financing will be authorized toward the purchase.

Factors that can affect the appraised value of a piece of property include its curb appeal, any infrastructure issues that need to be addressed, the comparable sale prices for neighboring homes, and local crime rates. Proximity to less-than-desirable features could negatively affect the appraised value. This could include being located next to a source of noise pollution such as an airport or train station. If a property is in good condition, its appraised value may fall in line with similar properties in the surrounding area.

Improving Appraised Value