Market value is "the most probable price a property should bring in a competitive, open market, under conditions requisite to a fair sale." This represents a pre-negotiation opinion of what your house should command in its area, whether that's your specific neighborhood or broader community. Understanding true market value is crucial to establishing a realistic starting point for negotiations. Appraised value is an evaluation of your property's worth at a specific point in time, performed by a professional appraiser. This appraised value plays a important role in loan underwriting and determines how much money can be borrowed and under what terms. For instance, the Loan to Value (LTV) ratio is based on this appraised value. In an appraisal disparity, when the LTV exceeds 80%, lenders typically require buyers to purchase mortgage insurance. Appraisals are one person's opinion of value at a given time. Sometimes appraisals must be challenged and negotiated. This is a skill that comes with professional expertise. Assessed value is the amount the local or state government has designated for your specific property and frequently differs from market value or appraisal value. This figure serves as the basis for your property tax when levied. The assessed value of real property is not necessarily equal to the property's current market value. These assessments can also be challenged by the homeowner with proper documentation and support. Understanding these valuation principles provides the foundation for strategic pricing (Chapter 8) and positions you for successful negotiations (Chapters 12-14) when buyers make offers.
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