Is an Appraisal an Accurate Representation of Market Value?


Well, not always at least. The question has come up from numerous buyers I know on whether they should they buy a property that appraises for less than the purchase price. I know this one is going to spark some debate, so rather than try to sway you one way or another I’m going to explain this whole appraisal thing in a bit more detail so you can better understand what is going on and you can make your own determination on how representative appraisals are of actual market value.

What is an Appraisal?

You are likely only going to see an appraisal on a property if you are financing a purchase. The lenders are typically the ones who order appraisals since they want to know the “value” of a property before they lend money on it in case you default and they have to take possession of the property. They don’t want to end up with a property that isn’t worth that they loaned out on it. An individual can order an appraisal too if they want, you just don’t see it as much.

An appraisal is a thorough assessment of everything related to a particular property that may help determine the true value of that property. How big is the house, how old is the house, comps from other houses nearby, etc. It is a fairly thorough assessment and worth educating yourself on if you aren’t familiar with what all goes into an appraisal. I discuss the factors in detail here, but it’s worth looking up. Or look through the appraisal of a property you may have purchased and see what factors were considered. Once an appraiser factors all of these things in, he determines the “appraised value” of the property. This appraised …read more