Market Value vs Appraisal Value: Do You Know the Difference?

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Everyone who has been in real estate for more than a day has heard the term “market value”.

Unfortunately, most people also assume that is the same thing as “appraisal value”.

While at times they may be the same, in rapidly changing markets these two types of property values may be very different.

In this post, we are going to explain each type of value and show you how each can affect your job as a real estate agent.


To start out, let’s take a look at the definitions of both market value and appraisal value.

The market value of a real estate property is the price that a property would sell for on the open market under usual conditions.

The appraisal value of a property is the price that a real estate appraiser can prove a property is worth by analyzing market data.

There are three approaches to value in the appraisal process: the sales comparison approach, the cost approach, and the income approach.

Most likely, the sales comparison approach is the approach you are most familiar with, as it is the most commonly used method in a residential appraisal and it is the most similar method for the way the typical agent, as well as the typical buyer, values the property… based on what the comparables show.

The cost approach is the next most likely approach to be used and is common on new construction. However, it is never the only approach used, and many times is given very little or no weight in the determination of value when it is used in addition to the sales comparison approach.

The third approach to value, the income approach, is rarely used in residential real estate appraisals unless the property will be used as an investment property.

Now that we have clarified what each type of value is, and how they are estimated, let’s talk about how they compare to each other.

Ideally, market value and appraisal value would be the same thing.

In a perfect scenario, an appraiser would be able to identify data that would give an accurate picture of what a property is worth to the buyers in the current market.

That is the goal of an appraisal.

But sometimes there is a problem…

The problem is that appraisals have to be based on historical data (most appraisals are based on the prior 6 months or 1 year of data) that is brought current through the use of market adjustments (aka time adjustments).

Sometimes this works well. But other times the time adjustments that can be calculated and applied can not fully account for the speed at which the market is moving.

This is a problem in both rapidly increasing and rapidly decreasing markets.

All real estate statistics are lagging indicators meaning that they only show what has happened, and not what is going to happen.

While most appraisers try to counteract this flaw by applying time adjustments, sometimes the provable statistics are not able to fully account for the price changes.


Market value is based on buyer emotion.

It is greatly influenced by supply and demand. Which means that it changes quickly.

Much more quickly than the statistics can catch up.

And while that may impact the price that your buyer has to offer or the price that your seller is likely to receive a contract based upon, lenders do not want to see a value that is based on emotion.

This is why an appraisal is needed.

What is the purpose of an appraisal?

Lenders want to know what a property is worth in case the borrower of the loan defaults and they are forced to take the property back in foreclosure.

In the case that this happens, they want to know the most likely value that they can resell the property for.

Sure, they will try to sell it for as much as they can, but they are not going to do whatever it takes to maximize the value of a property the same way an individual owner may when they sell a home.

This is evident by the fact that REO properties usually sell at a discount from both market value and even appraisal value.

That means that the bank does not want to know the maximum amount a single person will be willing to pay if they find the perfect buyer.

They want to know what the home is worth to the typical buyer.

For this reason, lenders have historically been hard on appraisers when large time adjustments have been made.

Why is that?

Before a time adjustment has been made to a property, the value of the sale is a fact. For example, let’s say a comparable home sold six months ago for $500,000.

It is a fact that a buyer paid $500,000 for that home.

Now let’s assume that the market is showing a 12% increase per year. A time adjustment of 6% (12% per year divided by 12 months = 1% per month multiplied by 6 months since the sale = a 6% time adjustment) would result in an adjusted sales price of $530,000.

This is an estimate, not a fact, and therefore lenders want a lot of proof that the market is actually increasing at this rate.

For this reason, time adjustments are likely the most important adjustments made in the process of determining property value.

Unfortunately, oftentimes they are also the least supportable adjustments made by most people, as most appraisers or agents don’t have a great way to estimate them.

Note: We wrote an in-depth post about how to analyze the market and determine trends that show you step-by-step how to calculate time adjustments.

Many times, both agents and appraisers use increasing or decreasing market adjustments based on simple year-over-year calculations that can be dramatically affected by outliers or small data sets.

For this reason, the better you can get at estimating time adjustments, and estimating the appraisal value, the better you will be prepared to provide the best service to your clients.


Now that you know the difference between these two types of value, the question you should be asking yourself is, “How does that affect my job as a real estate agent?”

Good question!

The fact that these two approaches to value can be different highlights the importance of understanding both.

Your job as a real estate agent is to get your client the best deal possible, right?

That usually means maximizing the value you sell a property for so your seller earns the most they can, or minimizing the value you negotiate a purchase for so your buyer gets their new home at the lowest price possible.

And while these goals are based more on market value than appraisal value, the appraisal value needs to be considered as it will have an impact on both scenarios.


According to NAR, 87% of home buyers finance the purchase of their homes.

That means that 87% of the time, the maximum you seller will be able to sell for is the value the property appraised at.

It also means, for 87% of your buyers, the maximum they will be able to offer will be the appraisal value.

So how can you use the knowledge of the appraisal value to your benefit?

Prepare Your Clients

The most important thing you can do once you understand the difference in the two types of value is to use it to help prepare your clients.

It allows you to have a conversation with your seller about the market value that they will likely receive as an offer, but also the appraisal value that will likely determine the final sales price of the home, and any difference between the two.

Many times sellers get attached to the contract price, which may be well above the list price, only to have their dreams crushed later when the appraisal comes in low and they have to lower the price to make the deal work (sometimes all the way to the appraisal value and other times somewhere in-between the two).

Even worse is when sellers make their next purchase decision based on the contract price, only to have the appraisal value decrease their net proceeds and potentially affect the ability to fulfill their new purchase contract.

Have you ever had that happen?

Perhaps your sellers got a contract for an extra $50k or $75k than they thought they would get, and based on that, went and offered on a more expensive house than they originally planned to purchase, only to have it fall apart after an appraisal came in low and they no longer had the extra funds to buy the more expensive house.

I hope this hasn’t happened to you. But it happens more often than you would think.

Knowing the difference between the two types of value also allows you to prepare your buyer for the likely value that their lender will be able to lend on, and help them know if they will need to be prepared to bring additional funds in cash to closing to cover the difference.

A few short years ago an appraisal gap was nearly unheard of, but today in Spring of 2022 it has become the norm in many areas of the country.

Having a good picture of the appraisal value helps you to better advise your clients on whether or not an appraisal gap may be needed, and if so how large it may need to be.

The better you can prepare your clients, the smoother the transaction will go, and the happier they will be at the end of it.

Use it to better analyze offers

Let’s say that you know a property is likely to appraise for $500,000, but you list it for that and receive multiple offers all the way up to $560,000.

In this case, the appraisal value ($500,000) is much lower than the market value ($560,000).

What does that mean for you and your seller?

Which is a better offer in this case: A $560,000 offer with a $7,500 appraisal gap? Or a $525,000 offer with a $25,000 appraisal gap?

While the first offer may appear better at first glance and would be better if the home could appraise above $525,000, the second offer is actually better since we know the likely appraisal value will be $500,000.

Knowing the likely appraisal value will help you to advise your clients on which offer is likely to net them more money when all is said and done.

It also allows you to better analyze the type of offer your client should make on a property, and help you defend the reasoning to the selling agent.

In the above example, if you were the agent presenting the $525,000 offer with the $25k gap you would be able to explain how strong of an offer this is as it is likely to net the seller $25,000 more than the appraised value, and potentially more than higher offers that have a smaller appraisal gap.

Use it to Fight a Low Appraisal

Just because you have a good estimate of what the appraisal value should be, doesn’t guarantee that’s where the appraisal actually comes in.

Each appraiser looks at things slightly differently, and each has a slightly different method for determining the value of a property.

But, having a good estimate of where it should be gives you the ability to provide good reasoning for a reconsideration of value request if the appraisal comes in low.

After all, the best way to fight a low appraisal is to provide good comparables, adjusted with the appraiser’s own adjustments, that support your value while also requiring similar or lower overall adjustments to the comparables used in the original report.


I hope that you now have a little better view of the difference between the market value and the appraisal value of a property.

Next time you hear someone say, “market value is whatever a buyer is willing to pay” you will know they are right, but you will also know why it may not matter.

Remember, most home purchases involve a loan, and therefore require an appraisal, which means that the appraisal value is far more likely to determine the final value of the sale than the market value is.

Unless there is a large appraisal gap in place, in which case the appraisal value may not matter much.

However, even though this may be common currently, in the long run, it won’t be.

When that time comes, understanding the difference between the two types of value, and accurately being able to estimate the appraisal value, will be one the most important skills you can have as a real estate agent.

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Market Value vs Appraisal Value: Do You Know the Difference?