Property valuation is an essential process in the real estate industry as it determines the market price of a property for sale or purchase. However, there are two distinct values used in property valuation: market value and appraised value. According to Vanguard Valuations understanding the difference between market value and appraised value is crucial for anyone involved in property transactions from buyers and sellers to lenders and real estate agents.

Market Value:

Market value refers to the price that a property would sell for on the open market assuming that both the buyer and seller are well-informed and acting freely and without undue pressure, it is determined by the interaction of supply and demand in the marketplace and it is influenced by a variety of factors including the property’s location, size, condition and amenities, as well as the current state of the economy and the real estate market. Market value is dynamic and can change rapidly in response to changes in the market conditions.

Appraised Value:

Appraised value on the other hand is an estimate of a property’s value that is determined by a professional appraiser therefore an appraiser is a licensed or certified professional who is trained to evaluate a property’s worth based on a variety of factors including the property’s physical condition, location, comparable sales data and other relevant market information. Appraisals are typically ordered by lenders or mortgage companies to ensure that the property is worth the amount of money being borrowed.

Differences Between Market Value and Appraised Value:

The primary difference between market value and appraised value is the way that they are determined. Market value is based on the interaction of supply and demand in the marketplace while appraised value is based on a professional assessment of a property’s worth. As a result, market value can fluctuate rapidly in response to changes in the market while appraised value tends to be more stable over time. Additionally, market value is determined by buyers and sellers in the marketplace while appraised value is determined by a professional appraiser.

Another important difference between market value and appraised value is the purpose that they serve; market value is used to determine the price that a property will sell for on the open market while appraised value is used to ensure that a property is worth the amount of money being borrowed or to determine a fair asking price for a property. For example, if a buyer is seeking a mortgage loan to purchase a property the lender will order an appraisal to ensure that the property is worth the amount of money being borrowed, similarly, a seller may order an appraisal to determine a fair asking price for their property.