Appraised value: Overview, definition, and example
What is appraised value?
Appraised value refers to the estimated worth of an asset or property determined by a professional appraiser, typically based on factors such as condition, market trends, and comparable sales. The appraiser uses their expertise and specific valuation methods to assess the value of real estate, personal property, or other assets. This value is often used for purposes such as securing a loan, buying or selling property, insurance purposes, or estate planning.
For example, an appraiser might assess the value of a house to determine how much a bank is willing to lend to a borrower for a mortgage.
Why is appraised value important?
Appraised value is important because it provides an objective and professional assessment of an asset’s worth. For lenders, it helps determine how much to lend in relation to the asset’s value, reducing the risk of loan defaults. For buyers and sellers, the appraised value helps ensure that the price being paid for an asset reflects its true market value. Additionally, appraised value is often used in insurance policies to ensure that the asset is adequately covered for loss or damage.
For property owners, understanding the appraised value can help guide decisions related to buying, selling, or refinancing assets. For businesses, it assists in determining fair market value for assets and investments.
Understanding appraised value through an example
Imagine a homeowner wants to refinance their mortgage. The bank requires an appraisal to determine the current market value of the property. An appraiser evaluates the home’s condition, location, and recent sales of similar homes in the area, and estimates that the appraised value is $300,000. Based on this appraised value, the bank can decide how much money they are willing to lend to the homeowner.
In another example, a collector wants to sell a rare vintage car. Before selling it, they hire an appraiser to determine the appraised value of the car based on its condition, rarity, and market demand. The appraiser concludes that the car’s appraised value is $100,000, helping the seller determine a fair asking price.
Example of appraised value clause
Here’s how an appraised value clause might look in a loan agreement or contract:
“The Borrower agrees to provide the Lender with an independent appraisal of the property to be used as collateral. The appraised value of the property must meet or exceed $250,000 to satisfy the conditions of the loan.”
Conclusion
Appraised value is the estimated worth of an asset or property determined by a qualified appraiser. It serves as an important tool for decision-making in various contexts, including lending, buying, selling, and insurance. Understanding the appraised value helps ensure that assets are valued fairly and that financial transactions are based on accurate, objective assessments.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.