Let’s step into the real estate classroom briefly so we can better understand all these confusing terms!

The price of your home is not solely based on what you paid for it, the improvements made to it, or the net profit you need in order to buy your next home. These factors are ultimately adjusted based on what the market will bear. In other words, MARKET VALUE refers to the actual value of your property when placed on the open market - what a buyer is willing to pay for it and what the seller is willing to accept. It is an opinion based on the features, benefits, and location of the property, the state of the overall real estate market supply and demand, and what other similar properties have recently sold for. The APPRAISED VALUE of your home is determined by a licensed real estate appraiser and can be the same or significantly different than the market value. If your appraisal comes in lower than what the market value is, you’ll have what’s called an appraisal gap. This is where hard decisions come in. If you really want the property and you have an appraisal gap, you will have to bring additional cash to close because the mortgage amount is based off the appraised value. Lastly, the ASSESSED VALUE refers to the amount of property taxes that the government will levy on the property.

If we think of this process like eating out at a restaurant, the Assessed Value would be the raw ingredients used to create the meal. The Appraised Value would be the food critic’s opinion of what the meal is worth based on their prior knowledge of similar meals with similar ingredients, and the Market Value is what people are willing to pay for it. Is a burger ever really worth $5,000? Google it - you can get one in Las Vegas and if someone is willing to pay it then it has market value. As Warren Buffett says “price is what you pay and value is what you get”.

Why does all this matter?

Pricing your home correctly the first time is critical to get a great Market Value. The longer your home sits on the market, the more likely you will have to drop the price, and that becomes a turn off to many buyers. Just because you see value in that $50,000 custom-built karaoke room, it doesn’t mean potential buyers want to pay $50,000 above Market Value for your house compared to the rest of the neighborhood. If you absolutely love singing then it’s worth the upgrade as you’ll get many years of enjoyment out of it. But just remember, when you go to sell, your renovations will only increase the value of your home IF those enhancements are popular at the time of sale and your home is one of the only ones in the area that has that feature. Now it’s an asset and has value!

I know this can be confusing and subjective, but I’m here to help! Let’s sit down together and I will help you figure out what your home is truly worth.