What is the Difference Between Selling Price and Appraised Value?

By Celeste Stewart

If you are buying or selling a home, you may be surprised to learn that the selling price and the appraised value of the home are two different things. The selling price and the appraised value may be close or they could be worlds apart. What’s the difference?

The appraised value is the price that the lender thinks your home is worth. An appraiser for the bank will look at a variety of factors in determining how much the home is worth including comparable sales, square footage, improvements, and even how many light fixtures the home has.

The bank wants an unbiased opinion when appraising the house, not the opinion of someone who has an interest in selling it. They hire appraiser to make an independent assessment. The bank uses the appraised value when determining how much money they are willing to lend a potential buyer. For example, if they determine that the house is worth $300,000, there is no way they will lend a buyer $500,000 to purchase the home because the bank doesn’t believe the home is worth that much. If the buyer were to default on the loan, the bank would not be able to recoup their investment because the house is only worth $300,000.

The selling price is the price that the home actually sells for, regardless of the appraised value. If the bank believes the house is worth $300,000 but the seller is in a bind and needs to sell the house immediately, they may put the house on the market and accept a selling price lower than the appraisal.

On the other hand, if the house is in a desirable area and few homes are on the market, a bidding war could ensue. When this happens, the house will sell to the highest bidder. The selling price could be well over the appraised value. The bank may have a problem with this and require a higher down payment.

Whether you are a buyer or seller, it’s important to understand the difference between selling price and appraised value. Your realtor will be happy to share area home sales comparisons (comps) so that you can determine the market price of the houses in the neighborhood. The appraiser will likely look at similar comps.

When setting the home’s asking price, you will want to have this information so that your home is competitive with others and neither overpriced or underpriced. If you’re a buyer, knowing the market value of houses in the area will help you to make an appropriate offer. In addition, you may be able to use the bank’s appraisal as a bargaining tool if the appraised value comes in lower than the asking price.

Buying or selling a home involves a great deal of research. You’ll want to know what other comparable homes in the area are selling for and how much banks have appraised these homes for in the past.

© Allison Van Wig