Appraised Value

Appraised value meaning refers to the value of a property at a particular point in time, determined by a professional appraiser. Evaluating the value is an essential part of the loan underwriting procedure as it determines the loan-to-value ratio and the loan terms, like tenure, fees associated with the loan, the interest rate, and other special conditions, if applicable. 

Calculation of this value may take place in the following cases: 

• At the time of purchasing or selling a property, for example, a house 
• When applying for a home equity loan 
• At the time of refinancing a mortgage 
• When appealing an income tax assessment 

It is crucial to keep in mind that this estimate may not match the property’s actual market value. Also, it may not be the same as the selling price, which may even be higher as a result of a bidding war or a high demand for real estate in the area.  

Some of the key factors impacting this value are as follows:

• Location: A few key aspects that make a property’s location favorable are a low crime rate, streetlamps, nearby schools, and well-maintained roads.
• Size Of The Property: This factor includes the square footage of bathrooms and bedrooms, the size of the living room, etc. The design and style of a house are also important factors to consider.
• Curb Appeal: The general landscaping and curb appeal influence this value. If a property lacks curb appeal, its value drops. Ideally, a clean and easy-to-maintain landscape design appeals to the majority of buyers and increases the appraised value of houses. 
• Comparable Properties: At the time of calculating this value, professional appraisers take into account comparable properties sharing similar features in the same neighborhood. The licensed professional utilizes the sales comparison approach or SCA to carry out the analysis of homes sold within the same area to get an accurate value. 
• Age And Condition Of the Property: Generally, the more well-maintained and newer a property, the higher the vale determined via the appraisal. That said, this is not always the case. Some old houses that are in good condition could even have a higher value when compared to a newer property. In such cases, other factors, like curb appeal and size come into play.
• Storage And Closets: Typically, the more the storage space, the better the value. A useable basement, large closets, or a large attic are all factors that positively impact the value.
• Renovations: If individuals are looking to renovate their property, they must take into account how the alterations may impact its value. Improved bathrooms and an upgraded kitchen may add value. However, one must remember that all buyers may not appreciate the changes. Incomplete projects or a lot of personalized renovations could potentially reduce the property’s value.  

The calculation of the appraised value of houses involves the following steps:

1. Find Comparable Properties 

One needs to search for a minimum of three recently sold houses with similar a structure, bathrooms, bedrooms, locations, and sizes and check the price. Typically, the closer the properties, the better.

2. Figure Out The Price/Square Foot 

After figuring out the estimated selling price by checking out the price of at least three comparable properties in the market, individuals must divide the individual prices of the properties by their respective square footage. The result will then be the price/square foot.

3. Get The Range 

Next, one must add up the price/square foot of each of the comparable properties and divide the sum by the total number of houses. The result will be the average price for each square foot. Individuals can take this number and multiply it by the square footage of the property. Once they obtain the final value, they can subtract or add 10% of that value to determine a price range for their property that is reasonably accurate. 

Let us look at a few appraised value examples to understand the concept better.

Example #1 

Suppose Jim is looking to purchase a 1,050-square-foot house by taking a loan from a financial institution named ABC Bank. The bank would offer the loan after finding out the appraised value of the property through a licensed appraiser. As part of the appraisal process, the professional first identified three recently sold comparable properties in the neighborhood. 

The details of the three properties are as follows:

Therefore, the average price/sq foot = 1503/3, i.e., $501

This means the final value of the property that John wants to purchase will be 1050 x $501, i.e., $526,050.

As discussed above, one may determine the lower and upper price range of the property by subtracting and adding 10%, respectively. 

Example #2 

According to a report published on September 27, 2024, Smithfield’s Town Council drafted a contract for the sale of the Smithfield Times building to convert it into a beverage, food, and event space. The sale would be for 75% of the property’s appraised value. Per the draft contract released on September 26, 2024, No Hassell LLC would buy the building for the price of $400,000 after placing a higher bid than Mark Hall, the chief executive officer of Hallwood Enterprises.

The proposed selling price was significantly below the appraised value of $535,000 provided by the Sinnen-Green Associates appraiser in March. However, according to Councilman Randy Pack, Smithfield’s Town Council was fine with $400,000 considering the easement on the front of that property. 

Individuals can increase the appraised value of houses by taking the following measures:

• Making improvements beyond the basic repairs and general upkeep 
• Opting for permanent upgrades that would improve the house’s utility
• Increasing recreation options 
• Installing energy-efficient equipment that can improve ventilation and heating 
• Expanding the garage space 

Additionally, individuals can improve the bathrooms of the property by adding new showers and tubs to improve the estimate. 

Although the differences between the appraised value and market value might be known to some people new to these concepts, understanding how they differ from the assessed value can be tricky. So, the table below compares the three terms to eliminate the possibility of any confusion: