Appraised Value

Appraised value is the dollar figure a licensed appraisal assigns to a property, representing the appraiser's professional opinion of its fair market value based on comparable sales, condition and location. It is distinct from the purchase price a buyer and seller agree on, though the two are often close in an orderly, well-functioning market.

Lenders use appraised value, rather than purchase price alone, to calculate the maximum loan amount they will approve, applying a loan-to-value ratio cap to whichever figure, appraised value or purchase price, is lower, so the lender is never exposed beyond what an independent valuation supports.

Appraised value is the number a bank actually trusts when deciding how much it is willing to lend against a property, as opposed to the price two private parties happened to agree between themselves, which can sometimes drift above or below what the wider market would actually support.

In a fast-rising market, buyers sometimes agree to pay more than a property later appraises for, forcing them to cover the shortfall in cash or renegotiate, since the lender will not finance based on a price the appraisal does not support. Conversely, a property that appraises above the agreed price can give the buyer instant equity at closing, a welcome but not guaranteed outcome of the appraisal process.

Buyers or sellers who believe an appraisal came in too low can request a reconsideration of value, supplying additional comparable sales the appraiser may have missed, though lenders are generally cautious about overturning an independent appraisal without strong supporting evidence, to preserve the appraisal's integrity as an arm's-length assessment.

Appraised value for mortgage purposes should not be confused with the value a local government uses to calculate property tax, which is often assessed on a different schedule and methodology entirely, sometimes producing a noticeably different figure from the mortgage appraisal completed around the same time.

A property's appraised value at origination is only a snapshot; as a borrower builds equity through repayments and potential appreciation, a later appraisal, requested for example when applying for a home equity line of credit, can produce a materially different figure reflecting changed market conditions since the original purchase.

It is not unusual for two different appraisers to arrive at somewhat different appraised values for the same property, since appraisal involves professional judgment alongside data, which is why lenders sometimes order a second appraisal, or a formal review, if the first result seems inconsistent with other available market evidence.

During a period of falling property prices, appraised values can lag behind the most recent, lower sale prices actually being achieved in a neighbourhood, since appraisers rely on completed comparable sales data that may not yet fully reflect a very recent shift in market sentiment.

Some renovation loan products base the appraised value on the property's expected condition after planned improvements are completed, rather than its current as-is state, allowing a borrower to finance both the purchase and the renovation using a single loan sized against the higher future value. This "as completed" appraisal approach requires closer coordination between the appraiser, lender and contractor than a standard purchase appraisal, since the appraiser must estimate a value for work that has not yet actually been done.

A property's appraised value for mortgage purposes should not be confused with its insurance replacement cost, which estimates what it would cost to rebuild the structure rather than its market sale value, and these two figures can diverge significantly, particularly for older homes where land value makes up a large share of the appraised market value while contributing nothing to the cost of rebuilding the structure itself.

Lenders occasionally require a second, independent review of an appraisal before finalizing a large loan, particularly on higher-value properties, specifically to confirm the original appraised value holds up to additional scrutiny before committing a substantial amount of credit against that single valuation opinion. This second review is typically a desk-based analysis of the original appraiser's comparable sales data rather than a full second physical inspection of the property.

A homeowner who disagrees with an appraised value used for a refinance, rather than a purchase, generally has the same right to request a reconsideration of value as a purchaser would, though the practical urgency is often lower since there is usually no pending sale deadline creating time pressure on the outcome.