Is Fair Market Value the same as Appraised Value?

By
Real Estate Agent with Long & Foster Real Estate Inc 610-225-7400 PA License - AB067198

There are many terms used when purchasing a home revolving around value. We touched yesterday on the assessed value. Many people presume the appraised value is going to be equal to the appraised value, but this is not always the case.

Firstly, let's talk about fair market value. Generally what a buyer is willing to offer and a seller is willing to accept is fair market value. With multiple offers that value may be higher than the asking price for a home. We have definitiely seen that over the last two years with the lack of inventory and the number of buyers taking advantage of the ultra low interest rates we were experiencing.

What that caused was many situations where the appraised value did not equal the fair market value agreed upon by the buyer and seller. Why not?

Whilst the buyer pays for the appraisal, it is done really for the bank or lender who is providing the mortgage. They want to make sure that the value of the property being bought covers the mortgage they are providing. Appraisers are appointed by an independent third party management company, so no undue influence can be brought to bear upon them to increase the value to match the agreed price for the home.

The appraisers job is to find comparative sales within the local area and for the style of the home being sold. These comparative sales are always historical. What I mean by that is they are always in the past. Obviously, these are recorded and can be seen in the MLS and are often verified by the appraiser to ensure they are accurate. His job is also to make sure if there were any incentives paid by the seller, such as closing costs for the buyer as this affects the value of the home.

Appraisers make adjustments to the comparative sales they use, maybe this one has an extra bedroom or bathroom. This one has a three car garage, or is on a larger lot, maybe it has a swimming pool. Is the home below the grade or above the grade of the road. All sorts of things affect the value the appraiser assigns to the house.

If prices are rising rapidly, it may be difficult to find comparative sales for the price agreed by the seller and buyer. If the buyer has made this a contingency that allows him to get out of the purchase due to the house not appraising, then the sale might fall through. 

Over the last year, we have seen many buyers putting more money down and covering differences between the agreed price or fair market value and the appraised value. With buyers sometimes offering significant amounts over asking this helped them secure the purchase.

With prices starting to level off, and multiple offers slowing down, it should be easier for appraisers to find the comparative sales they need. However, with the lack of inventory those sales may be too far back, and again this creates a problem for the appraiser depending on the instructions from the lender.

If the appraised value does not equal the fair market value agreed by buyer and seller, it does not mean the lender will not lend money for a mortgage, but it may only lend a lower amount which means the buyer needs to pay the difference with either cash in hand, a gift from a family member or from another source acceptable to the lender. The price may also get adjusted following negotiations between the buyer and seller as a result of a low appraisal.

Really what happens all depends on what is in the agreement of sale or contract signed by the buyer and the seller. 

My aim is for you to have confidence to make the right decisions during the transaction because you understand the process and what is happening. Buying or selling contact me today, Nick Vandekar, Selling The Main Line and Chester County, office 610-225-7400, cell or text 610-203-4543, Nick@VandekarTeam.com.

Posted by

 

Nick Vandekar
Nick is a Tredyffrin Easttown Residential and Commercial REALTOR selling The Main Line, Chester, Delaware and Montgomery Counties.

Giving you the confidence to make
the right decisions.

92 Lancaster Avenue
Devon , PA 19333
SellingTheMainLine.com
Mobile: (610) 203-4543 [call or text me]
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If you are buying or selling on or around
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Comments (6)

Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Nick,

As a listing agent, I don't change my hat when it comes to determining the value of a property.  I look at it all. I give my clients the best information that is available at that time. 

Oct 04, 2022 12:58 PM
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

Sheri Sperry - MCNE® we all need to look at everything, sometimes you have a feel for a property, other times it is all about the numbers and data. With appraisals, you are always dealing with closed sales, unless you can share information about a pending sale you have knowledge about with an appraiser and he can confirm it.

Oct 05, 2022 02:10 PM
Patricia Feager, MBA, CRS, GRI,MRP
DFW FINE PROPERTIES - Flower Mound, TX
Selling Homes Changing Lives

Nick Vandekar, 610-203-4543 - we are not allowed to use the word "value," anymore. 

I do like what you have written. it's a good explanation. 

Oct 05, 2022 05:03 PM
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

Patricia Feager, MBA, CRS, GRI,MRP customers and clients often do not understand the differences between all the different terms used, and often make assumptions which are wrong. Our job is to make sure they understand how all the different parts fit together.

Oct 06, 2022 07:00 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Nick, have to say our assessed value on MOST homes are very near fair market value.  They are getting better.

Oct 06, 2022 07:53 AM
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

Joan Cox unless they reset our base year, they will always be off, but with Delaware County having just had to reassess due to a court order, I can see Chester is going to follow suit pretty soon.

Oct 06, 2022 07:55 AM