A potential Seller approached me this past week and asked if I could explain to him the difference between a market analysis & an appraisal. I did the best I could to articulate the differences. Have shared by summary for you below.
A Market Analysis is a process which is completed by a local, licensed, Real Estate Agent to determine market value on a real estate property (be it condo, single family, multi, commercial or land). It is similar to an appraisal but again done by a Real Estate Agent and not a licensed Appraiser. This is a free service that I provide to clients, friends and colleagues, too. Generally market analyses are performed right prior to the sale of the home to help determine market value and a list price. However, we also do market analyses for people years in advance of a sale just to help the home owners keep track of value and how their real estate portfolio fits in with their broader real estate portfolio.
An appraisal is performed by a licensed, professional Appraiser. Appraisals are generally ordered by a bank as a part of the lending process when a home owner is getting a bank loan to purchase a home. This helps the bank ensure that they are backing a good investment. If the home appraises properly, they know the Buyer has gotten a fair purchase price (at fair market value) which then lender is willing to finance. Appraisals are sometimes ordered too in divorce or estate settlement situations to help parties separate their assets fairly.
Both appraisals and market analsyes are done similarly. However the strategies that individual appraisers and real estate agents employ vary based on region and of course the individual. The Appraiser or Real Estate Agent enters the physical building, looks around and examines the property closely. They consider the amount of square footage, # of bedrooms, bathrooms, garage spots, parking, condition of the interior, exterior, location and any other factors that might impact value either positively or negatively. Other factors like architectural style, age of construction etc are also considerations. The individual then scans the recently sold properties (generally within last 3-6 months) in that local area, to determine comparable properties. They do this scan online but also and depending on the situation, drive by or go into other local properties to compare similarities and differences. The comparable properties sold prices are then compared closely to the property at hand and a “market value” or “appraised value” is then determined.
In the situation of completing a market analyses, I almost always provide a written report to my clients and review said materials in person so that the client understands justification for my determined market value /range.