Fair Market Value vs. Appraised Value: Which Is More Important?

By Felicia Oliver

Posted on August 29th, 2022

What Is Fair Market Value? | How Fair Market Value Is Determined | How To Find Fair Market Value | Appraised Value | How To Find Appraised Value | Appraised Value vs. Market Value | Which is More Important? | FAQs

fair market value vs appraised value

There are two main ways to express your home’s value: fair market value vs. appraised value.

Fair market value is how much your home would sell for on the open market right now, while the appraised value is your home’s objective value as assessed by a certified and licensed home appraiser.

These values are usually in the same ballpark, but there are subtle differences. Understanding those differences can be a major factor in your decision to sell your house or to wait a little while longer.

Plus, you'll need to understand your home's value to set the right listing price. Overpricing or underpricing your home could lead to major regrets.

If you need help determining your home's true value, our friends at Clever Real Estate can help. Clever offers a free service that will match you with the best local real estate agents from top-rated brokers including Keller Williams, RE/MAX, and more.

Best of all, sellers who end up listing with Clever can save big, thanks to pre-negotiated listing fees of just 1% or a flat $3,000 — a fraction of the standard 3%. The average home seller saves $9,000!

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What Is Fair Market Value?

Fair market value (also known as FMV) is an estimate of what a home will sell for on the open market— and helps you determine a listing price for your home.

The Legal Information Institute at Cornell Law School describes it as what an informed, unpressured buyer will pay for your home, acting on their own self interest, based solely on the value of the property. Fair market value is related to market conditions as much as it’s related to your home’s objective value.

How Is Fair Market Value Determined?

Real estate agents often determine fair market value using a comparative market analysis (CMA), since the fair market value of a house is highly related to local market conditions.

A CMA looks at recent sales of homes that have similar features to yours, and are located in similar neighborhoods. Because it looks at actual real world transactions, a CMA can usually produce a very accurate fair market value estimate.

But, a CMA, and fair market value in general, are only going to be as accurate as your comparisons. If you live in a Sun Belt suburb, for example, and there are a ton of homes very similar to yours that have recently sold, your CMA is going to have a lot of data points to use, and will produce a very accurate fair market value.

On the other hand, if you have a unique home, setting a fair market value is going to be a little tougher.

🔎 What is a Comparative Market Analysis?

A comparative market analysis (CMA) is an informal estimate of fair market value based on sales of comparable properties (also called comps) in and around the area. A CMA can be performed by anyone who is familiar with the area – this can include a broker or real estate agent, a seller or a homeowner.

How to Find the Fair Market Value of a Home

Step 1: Find Comps

Comps — short for "comparisons" — are homes that are similar to yours that have recently sold. Look for homes with similar square footage, number of bedrooms, lot size, age, and condition. Experts suggest finding at least three comps, and the more recent the sales, the better— try not to use any that sold more than six months ago.

Step 2: Average the Values of Your Comps and Make Adjustments

Adding up the sale price of all your comps, and dividing that by the number of comps will give you a rough estimate of your home’s fair market value. But you can likely refine that value a bit more.

If your home has more bedrooms than most of the comps, or a larger lot size, or is slightly closer to desirable amenities like green space or schools, adjust your value slightly upwards. If your home is smaller, older, or in worse condition or location, adjust downwards.

Step 3: Incorporate Market Dynamics

If home values are flat or have appreciated slightly in your area, you can use that average adjusted number.

If home values have appreciated significantly in the past six months in your area, and you’re in a very competitive market, you can give your value a proportional bump to reflect that.

A lot of setting a home’s fair market value is subjective, so you’ll have to just trust your gut. This is why many sellers prefer to use a CMA done by an experienced real estate professional, who understands local market dynamics and knows what buyers in your area want.

Our friends at Clever make it easy to find the best real estate agents near you — and most agents offer a free CMA to help you understand how they envision marketing and selling your home. With Clever, you can match with agents from Keller Williams, RE/MAX, and other top-rated brokers, all for pre-negotiated listing fees of just 1% (instead of the standard 3%).

Serious about selling? You need an agent.

Our partners at Clever Real Estate can match you with top-rated agents near you. You'll get fantastic service AND pay just 1% in listing fees. The average seller saves $9,000 with Clever!


What Is the Appraised Value of a Home?

Appraised value is the result of an independent assessment of a property by a licensed, third-party appraiser. Compared to fair market value, appraised value is a more personalized, objective estimate of what your home is worth.

Appraised value is used during escrow by the buyer’s lender to make sure that the home is actually worth the amount of the loan they’re underwriting. For example, if the buyer is asking for a $300,000 mortgage, the lender will want assurances that the home is actually worth $300,000; if the home appraisal comes in below that, the buyer may not get financing, or may have to make up the difference in cash.

In these circumstances, the lender selects the appraiser, and the buyer pays the appraisal fee as part of closing costs.

Sellers may want a home appraisal before listing their home, just to get an idea of how much it’s worth. Setting an accurate list price is dependent on getting all the information you can, so having a home appraisal done in addition to a comparative market analysis can help pinpoint the perfect list price— the most money you can get that will also result in a fast sale.

If a seller gets a home appraisal before listing, the lender might be open to using their results during escrow, but it’s rare. The lender is putting up a lot of money, and will usually want to use their own appraiser.

Home Value Estimators

Some people think there are some things like a Zillow appraisal or a Redfin appraisal. There aren't. But there are online home value estimators which can give sellers a decent idea of what their home may be worth on the market.

While a home value estimator can't be used in lieu of an appraisal, it's a good starting point. Plug in your ZIP code below to get an estimate of how much your home is worth!

💰 How Much Is Your Home Worth?

Before listing your home, find out how it compares to others in your local market.

How Is Appraised Value Determined?

The appraised value is determined by an independent, professional home appraiser. Home appraisers must be certified and licensed in their state, and are meant to offer an unbiased perspective on your home.

Some of the things a home appraiser looks at include:

  • Your Home's Overall Condition: Is your home properly maintained by the standards of your neighborhood?
  • Your Home's Size: The square footage, plus the number of bedrooms, bathrooms, and total rooms
  • Functionality: is your home’s layout up to date and aesthetically pleasing
  • The Garage and/or Driveway: How many cars your garage and/or driveway can accommodate
  • Major Systems: Plumbing, electrical, and heating/cooling; the age and type of your systems, and whether they’ve been properly maintained
  • Walls: General condition, including the materials and finishes used
  • Floors: General condition, including the materials and finishes used
  • Appliances: The age and condition of your refrigerator, stove, dishwasher, etc.
  • Energy Efficiency: Features like tankless water heaters, insulated windows, heat exchange systems, or energy efficiency certification
  • Your Home's Exterior: The material and condition of your home’s exterior, and any outdoor amenities like a deck, pool, fireplace, etc.
  • The Foundation and Basement: The structural integrity of your home; is the foundation cracked, leaky, etc.
  • The Neighborhood: Proximity to amenities like parks, schools, public transportation, urban centers, etc.
  • Special Circumstances: Local zoning restrictions, environmental hazards, flood zones, etc.

» Learn More: What Do Appraisers Look For? Here Are 11 Things They'll Check

What’s the Difference Between Appraised Value vs. Fair Market Value?

Fair Market Value
Appraisal Value
Based mostly on comparisons to other recently-sold homes
Based on a personalized, close examination of your home
A reflection of the market as much as your home’s value
Does take the market into consideration, but heavily weighs your home’s features and condition
Usually conducted by a real estate agent using a comparative market analysis (CMA)
Conducted by a professional, licensed home appraiser
Can fluctuate suddenly if the market changes
Is more consistent over time
Used by sellers and agents to set a listing price
Used by lender to underwrite buyer’s financing

As you can see, there are subtle but important differences between the fair market value and the appraisal value of a home.

The fair market value is a snapshot of how much a home is worth at a particular moment in time, while the appraised value is more of an objective valuation of a home’s features and condition. And the fair market value is more of a tool for sellers (and their listing agents), while appraised value is more of a tool for a buyer and their lender.

Bank Appraisal vs. Real Estate Appraisal:
Different Words for the Same Thing
A real estate appraisal is when a real estate agent finds the fair market value of a home, usually by using a comparative market analysis; technically this isn’t an appraisal.

A bank appraisal is another term for a home appraisal. These are ordered by the lender/bank during escrow, and completed by a licensed, independent home appraiser.

Appraised Value vs. Market Value: Which Number Is More Important?

In the end, both fair market value and appraised value are important— but how important each one is depends on whether you’re the buyer or seller.

Fair market value is important for the seller in setting the list price. If it's set too high, many buyers will move on to the next listing. If it's too low, you'll end up leaving money on the table. Or, a potential buyer may think that despite the description, it's less valuable than comparable homes they are considering.

Appraised value helps the buyer determine whether the offer they've made on the home is inline with its objective value. A buyer wouldn't want to pay more for a home than its appraised worth. More importantly, their lender will likely not approve a mortgage that prices the home above it's appraised worth.

As a result, the lender may reject the loan, or only agree to a loan amount that's in line with the appraised value - forcing the buyer to come up with more money out of pocket for the purchase to make up the difference.

And if the appraised value is above the contract offer, the buyer will feel like they're getting a good deal! If your goal is to price for a quick sale, this works to your advantage — as long as the difference between the two is affordable for you.

A real estate agent can be invaluable in determining your home's fair market value. Our friends at Clever can help by matching you with top-performing agents from companies like Keller and Coldwell Banker. And their discounted listing fees will help your budget manageable.

💰 How Much Is Your Home Worth?

Before listing your home, find out how it compares to others in your local market.

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FAQs About Fair Market Value vs. Appraised Value

Is Market Value More Than Appraised Value?

The fair market value is a snapshot of how much a home is worth at a particular moment in time, while the appraised value is more of an objective valuation of a home’s features and condition.

Since the fair market value is most useful to sellers and their listing agents, it's likely to be higher than the appraised value, as long as the market will bear it. Learn more about how market value compares with appraised value.

What happens when the appraisal is less than the market value?

A buyer wouldn't want to pay more for a home than its appraised worth. More importantly, their lender will likely not approve a mortgage that prices the home above it's appraised worth. Learn more about what happens when the appraised value of a home is less than the market value.

Is Fair Market Value the Same As Appraisal?

There are subtle but important differences between the fair market value and the appraisal value of a home.

Fair market value is based mostly on comparisons to other recently sold homes and reflects the current market. Appraisal value is based on a personalized, close examination of your home by a licensed professional. Market value comes into play, but more weight is placed on your home’s features and conditions. Learn more about the difference between fair market value and appraised value.

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Posted in Appraisals, Home Value, Preparing to Sell Your Home, Pricing Your Home, Selling a House