Appraised value is the estimated worth of a property as determined by a licensed or certified appraiser on a specific date. Lenders order appraisals before approving a mortgage or refinance, because the loan amount is tied to the property’s value.
The appraised value is an opinion backed by data, not a guarantee of sale price. It can differ from the listing price, the purchase price and the value used for property taxes.
How it works
Appraisers typically use one or more of three approaches:
- Sales comparison approach. Compares the property with similar properties that sold recently nearby, adjusting for differences in size, condition and features. This is the main method for single-family homes and small multifamily buildings.
- Income approach. Values the property based on the income it produces, usually by dividing net operating income by a market cap rate. It is common for apartment buildings and commercial property.
- Cost approach. Estimates the cost to rebuild the improvements, subtracts depreciation, and adds land value. It is useful for new or unusual buildings.
For income properties, the appraiser often weighs more than one approach and reconciles them into a final number.
Example
A hypothetical 12-unit building produces $120,000 in NOI, and the appraiser finds that similar buildings trade at a 7.5% cap rate. The income approach suggests a value of $120,000 divided by 0.075, or $1,600,000. Recent sales of comparable buildings point to about $1,550,000. The appraiser reconciles the two and reports an appraised value of $1,575,000.
Why it matters for landlords
Appraised value sets how much you can borrow, how much equity you can pull out in a refinance, and sometimes the starting point for a sale or a 1031 exchange. For income properties, a strong, well-documented NOI is one of the best ways to support a higher value. Accurate operating statements from TenantLoop accounting give the appraiser real numbers to work with. Our refinancing introduction explains how appraisals fit into the refinance process.
Related terms
Related questions.
Is appraised value the same as market value?
They are closely related but not identical. Market value is what a willing buyer would pay a willing seller, while appraised value is a professional estimate of that number on a specific date. The final sale price can land above or below it.
What happens if an appraisal comes in low?
The lender will usually base the loan on the lower figure. The buyer can bring more cash, renegotiate the price, challenge the appraisal with better comparables, or walk away if the contract has an appraisal contingency.