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![Appraiser looking at a home's interior.](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2Ff119e5560cd849b992c79157b423f7e7)

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When buying or selling a home, you'll hear two terms thrown around constantly: appraised value and market value. Both help determine a property's worth, but they're calculated and used differently in the home-buying process. One focuses on professional assessment, while the other reflects what buyers are willing to pay in today's market conditions.

Understanding the difference between market value and appraised value is key to making good decisions, whether you're a first-time buyer or a seasoned homeowner [looking to refinance](https://better.com/content/refinance-calculator). Here’s a breakdown of appraised value versus market value to get you started.  

What does appraisal value mean?
-------------------------------

An [appraised property value](https://better.com/faq/appraisals/how-does-the-appraiser-determine-the-value-of-my-home) represents a professional opinion of what your property is worth based on a detailed evaluation by a licensed appraiser, which helps lenders make sure they don’t lend more than the property is worth. 

To determine a property value, appraisers look at the home's square footage, number of bedrooms and bathrooms, lot size, and overall condition. They also consider recent sales of comparable properties (called "comps") within the same neighborhood, usually within the last six months. Location plays a huge role too. A home near good schools, parks, or shopping centers will likely appraise for more than one in a less desirable area.

When you apply for a mortgage, your lender will [order an appraisal](https://better.com/content/home-appraisal-process) to make sure the home is worth the amount you want to borrow. The appraiser examines everything from the property's condition and size to recent sales of similar homes.

Appraisers must follow specific guidelines from government-sponsored enterprises like Fannie Mae and Freddie Mac. These standards help keep consistency across different appraisals but can also make the process feel rigid compared to how buyers shop for homes. 

What is market value in real estate?
------------------------------------

Market value represents the price a willing buyer would pay to a willing seller in an open market, assuming both parties have enough information to make an informed decision. Unlike the appraised value of a house, market value changes constantly based on supply and demand, economic conditions, and buyer preferences.

Market value is determined through actual market activity—what people are actually paying for homes. If buyers in your neighborhood pay $400,000 for three-bedroom houses, that's closer to the actual market value, regardless of what an appraiser might say. Factors like local housing inventory, interest rates, or and seasonal buying patterns can influence the market value of your home.

Sometimes market value can be higher or lower than appraised value, especially if the housing market is unusually hot or cold. 

### The role of market value in determining property taxes

Local governments use assessed values (similar to appraised values) to calculate property taxes, but these assessments should reflect market conditions. When market values rise faster than assessed values, property owners might see tax increases as assessments catch up to current market conditions.

Property owners can appeal their tax assessments if they believe the assessed value exceeds the current market value. Recent sales data and professional appraisals support appeals, potentially reducing tax burdens during market downturns.

Appraised value vs market value
-------------------------------

To summarize: an appraised property value comes from a licensed professional who follows strict guidelines and comparable sales data to figure out a property's worth, while [market value](https://better.com/faq/appraisals/what-does-market-value-on-a-home-mean) reflects the real-world price that buyers and sellers agree upon based on current market conditions and demand.

Appraisal and market value in practice
--------------------------------------

Let's say you find a home listed for $350,000 in a competitive neighborhood. You love the house and [offer](https://better.com/content/how-to-make-an-offer-on-a-home) $360,000 to beat out other buyers. The seller accepts your offer, making the current market value $360,000. 

However, when your lender orders an appraisal, the appraiser determines the home's worth at $340,000 based on recent comparable sales and the property's condition. Now, the market value ($360,000) exceeds the appraised value ($340,000) by $20,000.

Most lenders set loan amounts based on the lower appraised value. You'll need to come up with the extra $20,000 as an additional down payment, negotiate with the seller to lower the price, or find another way to bridge the gap. This scenario happens frequently in competitive markets where bidding wars drive prices above what appraisers consider reasonable.

When appraisal and market value don't align
-------------------------------------------

When market value isn’t the same as appraised value, it can create challenges for both buyers and sellers. If the appraised value is lower than the purchase price, buyers might need to pay the difference out of pocket or renegotiate the deal.

Several factors can cause this misalignment. 

—  In rapidly appreciating markets, appraisers might rely on older comparable sales that don't reflect current price increases. 
    
—  Unique properties without many similar homes nearby can also be challenging to appraise accurately.
    
—  Emotional factors like a buyer's attachment to a specific neighborhood or home features drive market prices above what appraisers consider reasonable.

These scenarios are why some home-buying contracts include an [appraisal contingency](https://better.com/content/appraisal-contingency). With an appraisal contingency, the buyer can withdraw their offer if the home’s appraised value is lower than the proposed purchase price.

When appraised value exceeds market value, it indicates a buyer's market where homes sell below their assessed worth. While this creates opportunities for buyers to get good deals, it might signal declining property values or economic uncertainty in the area.

How appraisal value affects property purchases and sales
--------------------------------------------------------

Appraisal value directly impacts your mortgage approval and loan terms. Lenders use the appraised value to calculate your loan-to-value ratio, which affects your interest rate and whether you'll need private mortgage insurance. If you're putting down less than 20%, a higher appraisal can help you avoid PMI or qualify for better rates.

Better helps coordinate with appraisers and makes the experience less stressful than traditional mortgage processes. Plus, our online platform streamlines the entire appraisal process by keeping you updated every step of the way. Track your application progress, upload documents digitally, and get pre-approved in as little as three minutes without gathering extensive paperwork upfront. 

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How market value influences real estate investment choices
----------------------------------------------------------

Market value drives investment decisions because it reflects buyer demand and economic conditions. Real estate investors analyze market trends, rental yields, and appreciation potential based on current market values rather than appraised values. They want to know what properties they sell for and how quickly they move off the market.

Market value also helps investors identify opportunities. It might signal good buying opportunities when market values drop below appraised values. And when market values consistently exceed appraised values, it might indicate an overheated market where investors should proceed with caution.

Get Better guidance through the appraisal process
-------------------------------------------------

While you can't control market conditions or appraiser opinions, you can prepare for both scenarios and work with professionals who keep you informed throughout the process.

Better's mortgage platform provides transparency and support during appraisals, helping you understand what's happening and why. Better's technology and expertise help you get the best possible outcome for your unique situation. 

Start your pre-approval process today to see how Better can make your home financing journey smoother and more transparent.

Appraised value vs. market value FAQs
-------------------------------------

### How can you enhance a property’s appraised value?

Making strategic improvements before the appraisal can potentially increase the value. Focus on repairs that affect safety and functionality first, like fixing leaky roofs or updating electrical systems. Fresh paint, clean landscaping, and decluttering can also make a positive impression on appraisers.

Provide the appraiser with information about recent improvements, neighborhood developments, or unique features that might not be obvious. You can't control market conditions, but you can point toward positive trends.

### What is the difference between fair value and appraisal value?

Fair and appraisal values are similar concepts used in different contexts. Fair value is often used in accounting and financial reporting to represent the price that would be received to sell an asset. Appraisal value is specific to real estate and represents a professional appraiser's opinion of worth based on established methodologies.

Both aim to determine objective worth, but fair value might consider broader market factors and potential future earnings. Appraisal value focuses more on comparable sales and physical property characteristics.

### How can I calculate market value?

You can estimate market value by researching recent sales of similar properties in your area, known as comparative market analysis (CMA). Look at homes with similar square footage, bedrooms, bathrooms, and lot sizes that have sold within the last 3–6 months. Online tools and real estate websites can provide this data, though real estate agents offer more detailed analyses.

Consider current market conditions, time on market for similar properties, and any unique features that might affect value. Remember that market value represents what buyers actually pay, so active listings (asking prices) are less reliable than recently completed sales.

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Understand the key differences between appraised value vs market value to make smarter real estate decisions and secure better mortgage terms.

Appraised value vs market value: What's the difference?

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![Man Pointing Next to a Child  Outside of a Large Open Window](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2Fca6fae6221564d3bbebe45838b7b42c2)

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<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">How to prepare for your home search ahead of time</p>

<p class="learnfont">How to determine your wants and needs lists and narrow down location</p>

  <p class="learnfont">What aspects and features to consider when touring a home</p>

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  House hunting is hands-down the most exciting stage of the homebuying process, but it can also be one of the most nerve-wracking. You probably have some idea of the things you need in a home, the things you want in a home, and things you absolutely don’t want in a home. But when you tour a home in person, it’s easy to lose focus or pay attention to the wrong details.

There are typically two ways to see a home that’s on the market: attend an open house or schedule a private tour. In some instances, you may also have the opportunity to do a virtual tour of the home—which can be a useful alternative if you're unable to attend in person. 

As the name suggests, an open house is an open invitation for anyone to show up and inspect a home during set hours. A listing agent will be there to field questions and give interested parties more information on the home. Private tours are usually set up with the listing agent or your own [real estate agent](https://better.com/find-an-agent). When a home really catches your eye, it’s typically better to schedule a private tour so you can take your time asking questions and take any measurements and photos. 

This guide will help you focus your thoughts and stay organized as you prepare for home tours, so you can make informed decisions and place an offer with confidence.

<h2>How to prepare for a home tour</h2>

<h3>First things first: Find out how much home you can afford</h3>

Before you start browsing listings, let alone touring homes, you should have an idea of what you can afford. To avoid getting your heart set on a home that’s out of your financial reach, spend a little time with a [mortgage affordability calculator](https://better.com/content/a-better-home-affordability-calculator/). These kinds of tools can help you confirm hypothetical home loan amounts, purchase prices, monthly mortgage payments, and whether you have enough in down payment savings.

<h3>Pro tip: Come prepared with a pre-approval letter</h3>

Confirm your eligibility for a home loan by going through [the pre-approval process](https://better.com/content/what-is-a-mortgage-pre-approval/). (FYI: it takes as little as 3 minutes with Better Mortgage, and it doesn’t require a hard credit check.) A pre-approval letter will provide you with a more accurate estimate of how much you’ll be able to borrow once you meet your lender’s conditions. Pre-approval letters can also add leverage to any home purchase offers, because they show agents and sellers that your offer is serious and you’ve already done the legwork to secure future financing.

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<h3>Make a list of your “needs” vs. your “wants”</h3>

Once you have an idea of what you can afford, it’s time to think about what your ideal home looks like. Start by making a concrete list of the things you absolutely need. 

Perhaps you require a certain number of rooms to accommodate your family, work, or lifestyle. For example, you know you’ll need three bedrooms for your growing family, or an extra room to serve as a home office because your company’s going remote. Understanding your must-haves will help you narrow down your home search so you won’t waste time touring houses that aren’t quite right.

Next, make a list of your wants—the features and things that may be nice to have but you could live without. These might include things like yard space, new appliances, or a fireplace. In other words, they’re things you picture in your dream home, but you could live without them. These will come in handy to weigh the pros and cons of similar properties. 

If you’re having trouble determining a need vs. a want, think about whether the feature would be easy and affordable to change once you move in, or whether it would be impractical or prohibitively expensive. For example, adding a dishwasher is a relatively small and inexpensive project compared to adding a garage. So, if your heart is set on a garage, you might consider that a need. 

If you’re looking at home listings online, they’ll likely have different criteria you can use to filter listings. If you’re working with a real estate agent, talking to them about your needs and wants will help them find properties that may work for you. 

<h3>Location, location, location</h3>

There’s a reason why “location, location, location” is such a common refrain in real estate. The address of your home can play a significant role in its appreciation as an investment. And if you plan on living in the home for even a short period of time, you want to make sure it’s somewhere you’re comfortable spending time. Before deciding on a location, it’s worth considering:

- <strong>Lifestyle and preferences:</strong> Are you looking for a home in a quiet suburb or a condo in a walkable downtown area? Do you want an acre of land, or do you want to avoid lawn maintenance altogether? Are you comfortable with a house on a main road, or would you prefer something more tucked away? Having some basic lifestyle criteria will help narrow your search.
- <strong>School district:</strong> If you have kids or plan to have a family in the future, school districts might be a major factor in your home search. Not only can schools affect your kids’ education experience, but they can also [affect property values](https://better.com/content/how-do-school-districts-affect-homebuying/).  
- <strong>Property taxes:</strong> Take a look at the last decade of [property taxes](https://better.com/content/how-to-calculate-property-tax-on-a-house) for the counties where you’re thinking about touring homes to get an idea of how  your property taxes may change over time. Increases in property taxes may not be a bad thing—often, it’s a sign of growth, improvement, and more services and resources for residents. Just be sure to consider the costs in your [budget](https://better.com/content/how-to-budget-for-your-monthly-mortgage-payment/).
- <strong>Neighborhood and surrounding areas:</strong> Do your research to learn about overall livability ratings for categories like crime, amenities, and walkability. Consider driving around any areas you’re considering to see how well-kept homes, streets, and local parks are. 
- <strong>Future zoning and infrastructure:</strong> Ask your real estate agent and/or the listing agent what they can tell you about any major changes planned for the area. Are there major development or infrastructure projects planned? New developments can mean increased traffic, but they might also mean increased property values. 

Considering these location factors can help give you a clearer picture of where you’ll want to live. 

<h2>Tips for touring a home</h2>

Now that you have nailed down some important criteria for finding the perfect home, it’s time to start seeing some properties.

A home tour is your best chance to ask questions and see if the property fits your needs. Here are some important things to think about as you’re touring homes: 

<h4>What to consider during the home tour</h4>

<strong>Structural condition, utilities, and HVAC</strong>

As you walk through a house, keep an eye out for any major cracks in the walls, floors, and ceilings. Structural damage, roofing, and HVAC systems are expensive fixes, so don’t be afraid to ask about any significant issues or renovations that may have occurred. 

<strong>Water damage and smells</strong>

Look out for signs of water damage or mold, which may indicate a moisture problem. Water damage can lead to significant structural problems and can be very difficult (and expensive) to fix. You’ll also want to take notice of any strong odors from smoke or pet urine, which can be persistent and difficult to remove entirely. 

<strong>Storage space</strong>

You’ll likely notice if there are plenty of closets, cabinets, and other storage areas, but it can be easy to overlook their absence. If you’ll need to add dressers or other storage, they can take up significant space in a room, so it’s good to keep in mind when you’re visualizing how you’ll use a space. 

<strong>Parking </strong>

Homes in a city or downtown area may not always come with designated parking spots. If you commute or otherwise use your car often, you’ll want to find out what the parking situation is like and if there’s street parking or other parking options available. Parking can get competitive quickly in more densely populated areas. On the other hand, neighborhoods with ample parking may have regulations about street parking which is something to consider if you like to entertain. 

<strong>Don’t get caught up on the small things</strong>

It’s easy to get distracted by dated appliances, paint or wallpaper that doesn’t match your taste, and other cosmetic details. Keep in mind that many of the things that will catch your eye during a home tour are fairly simple and relatively inexpensive to change. The bones of the house and utility systems are far more important to consider for the long term than the shag carpeting that can be easily removed. 

<h2>Update your must-haves</h2>

As you visit more homes, you might find new things you’re willing to compromise. Don't be afraid to update your wants and needs as you go. You may decide that you can’t deal with a small kitchen afterall, and that’s okay. Touring homes is a learning experience. 

<h2>What happens next?</h2>

Whether it takes one house tour or dozens, there’s no doubt that finding “the one” is an exciting experience.

Before you jump into an offer, take time to review your wants and needs list. If you can, walk the area during different times of day to get a sense of traffic, lighting, and noise. If you have the opportunity, talk to your potential neighbors to introduce yourself and ask questions about the area. 

You’ll also want to make sure “the one” works with your budget. While the asking price might fit into your pre-approved limit, there are other factors that can affect affordability like homeowners association fees, homeowners insurance, taxes, and utilities. 

When you’re ready to put in an offer, talk to your real estate agent to see if there are other contenders and what those offers might look like. Asking about recent sales of comparable homes (comps, for short) can give you an idea of how competitive the market is in that area. Your real estate agent can help you answer any questions and submit a [competitive offer](https://better.com/content/home-by-summer-june-to-dos-make-a-competitive-offer/).

Ready to start your home-touring journey? [Get pre-approved for a mortgage](https://better.com/preapproval/786066c2-f873-4c65-a64c-0cc34202d7f6) today, so you’ll be ready to put in an offer when the perfect house comes along.

<h2>Frequently Asked Questions About Touring a Home</h2>

<strong>Question:</strong> How should I prepare before touring homes?
<strong>Answer:</strong> Before touring homes, it's essential to understand what you can afford. Use a [mortgage affordability calculator](https://better.com/how-much-house-can-i-afford) to get an idea of your budget. Additionally, obtaining a pre-approval letter can provide a more accurate estimate of how much you can borrow and add leverage to your offers.

<strong>Question:</strong> What's the difference between an open house and a private tour?
<strong>Answer:</strong> An open house is an open invitation for anyone to inspect a home during set hours, usually with a listing agent present to answer questions. A private tour is arranged with the listing agent or your real estate agent, allowing for a more detailed inspection and questions.

<strong>Question:</strong> How do I differentiate between my "needs" and "wants" when looking for a home?
<strong>Answer:</strong> Your "needs" are essential features that accommodate your family, work, or lifestyle, such as the number of bedrooms. "Wants" are nice-to-have features like new appliances or a fireplace, which you could live without. Consider whether a feature is easy and affordable to change after moving in to help differentiate between the two.

<strong>Question:</strong> Why is location important when choosing a home?
<strong>Answer:</strong> [Location](https://better.com/content/how-to-choose-the-right-neighborhood-when-buying-a-house) can significantly impact a home's appreciation and your comfort living there. Consider your lifestyle preferences, school districts, property taxes, and the neighborhood's overall livability. Future zoning and infrastructure changes can also affect the area's desirability.

<strong>Question:</strong> What should I pay attention to during a home tour?
<strong>Answer:</strong> Look for signs of structural damage, water damage, or mold, as these can be costly to fix. Assess the storage space, parking situation, and don't get too caught up in minor cosmetic details that can be changed easily. Focus on the home's overall condition and utility systems.

<strong>Question:</strong> Can I update my list of "needs" and "wants" after touring homes?
<strong>Answer:</strong> Absolutely. Touring homes is a learning experience, and you may discover new preferences or deal-breakers. Don't hesitate to update your list as you gain more insight into what you're looking for in a home.

<strong>Question:</strong> What steps should I take after finding a home I'm interested in?
<strong>Answer:</strong> Review your wants and needs list and consider the home's affordability, including additional costs like homeowners association fees and taxes. Walk the area at different times to gauge traffic and noise, and talk to potential neighbors. Consult with your real estate agent about the market and submitting a competitive offer.

<strong>Question:</strong> How can I ensure my offer stands out in a competitive market?
<strong>Answer:</strong> A verified approval letter can make your offer more attractive. Discuss with your real estate agent about the competition and how recent sales of comparable homes may influence your offer. Your agent can guide you in [crafting a competitive offer](https://better.com/content/how-to-make-an-offer-on-a-home) that aligns with market conditions.

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Touring homes is an exciting part of the home purchase journey. Here’s a guide to help you tick all the (not-so-obvious) boxes to find your dream home.

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