The Appraised Vs. the Market Value of a House
Ideally, the appraised value of a house and its market value will be the same. In fact, the wording in most residential appraisal forms equates "appraised value" to "market value." However, this is rarely the case. Market value can be defined as "the value determined between a willing buyer and a willing seller in an open market." Appraised value is the opinion of value determined by an individual on a given date.
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Time Frame
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One of the factors that may account for the discrepancy between market value and appraised value is that appraisals are built on historical evidence whereas market value is current. Appraisers typically use sales that are between three and six months old to arrive at a value conclusion.
Motivation
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In a highly active real estate market, some buyers are willing to pay more than is reasonable or prudent for a house, regardless of current market or appraised value. Emotions take over and all reason goes out the window. Conversely, a highly motivated seller might take less than market or appraised value for his property.
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Considerations
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Consideration must be given to the context in which the market value or the appraised value is applied. Both valuation models can vary greatly depending on the circumstances. Neither is an exact science.
Misconceptions
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Some people mistakenly believe that it is the appraiser's job to justify a negotiated purchase price of a house. The appraiser is an independent third party reporting what she sees in the market to render an opinion of value.
Significance
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The only real significance between market value and appraised value occurs when the appraised value falls short of a negotiated sale price and threatens to void the transaction. These cases are often submitted for review and are resolved between the parties.
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