When thinking about the value of a home, most of us would probably think of the list price or sale price of a home. This number indicates the market value of a home, but it doesn’t tell us everything. The appraisal value and the assessed value of a home are equally just as important when buying or selling a house.
Appraised value is an objective assessment performed by a professional, licensed appraiser of a home’s value. The appraiser ignores things such as décor and personal preferences to paint colors and focuses on the factors of a house that cannot be easily changed, like the location, neighborhood, the age and size of the home and the materials used to build the home. To boost a home’s appraisal value, there is a $500 rule; homes appraise in increments of $500. If you can make an improvement or repair over $500, you should do it because it could impact the appraisal value of the home.
The appraised value is a critical step during both the closing process and when using a mortgage lender. Most lenders order appraisals before final approval of a loan application in order to help minimize the risk of lending. Generally, lenders will only lend a mortgage amount equal to the appraisal value of the home. If a home is appraised for less than the sale price, buyers have a few options to consider. They can pay the difference between the sale price and the appraised value out of their own pocket to ensure the same mortgage and interest rate, or they may have to back out of the sale if they are not approved for a higher mortgage amount.
More subjective than appraised value, market value is based on what the average buyer is willing to pay for a home at a point in time. Market value can be affected by staging, good photos on a listing and making home improvements prior to listing. When determining a listing price for a home, realtors assess property features and overall condition of the home, similar homes within proximity and what they’ve sold for in the past and they review the current real estate market trends to best price your home for the maximum amount they believe the house will sell for.
Depending upon the current real estate market, a home’s market value can fluctuate. If there’s a high inventory of homes for sale and low demand from buyers, your home’s market value will likely be lower. If there is a high volume of buyers looking for houses for sale and few homes on the market, then your home’s market value will be higher. It’s all dependent upon the attitude of the buyers in the market at the time.
Conducted by a municipal or county tax assessor, an assessed value is used to determine a home’s property taxes. It’s a percentage of the property’s fair market value. While the assessed value may not affect the offer or negotiation process of buying or selling a home, it can be leveraged to estimate escrow fees. Typically, property taxes are the second highest expense for homeowners after their mortgage, so considering the assessed value of a home is important to know because it will affect your property taxes.
The assessed value of a home will rise as homes increase in value over time. If your house assesses for more than you feel it’s worth, you can visit your county’s assessment website and check all the information about your home to see if there are any possible mistakes, such as square footage or number of bedrooms. Most people generally want the appraisal value of their home to be higher and the assessed value of their home to be lower, due to the tax implications.
Whether you’re buying or selling, understanding home values and how they can be beneficial to help you along your homeownership journey is important. At Mutual Title, we make sure home buyers and sellers are confident in their decision during the closing process. Our team delivers world-class service and support to guide customers along each step of the way to achieving their home goals. Contact Mutual Title today to learn more about the process and choosing a title agency for your closing!