What is the difference between a home appraisal and market value?
In theory, both terms are easy to define and explain.
But in practice, and in the real estate market where buyers and sellers make decisions based on emotion and personal circumstance, agreeing on the definition of “market value” is a seemingly impossible task.
In order to delve into the definitions of both market value and appraisal, first, we would want to know why a homeowner would be interested in one or both, as this often shapes or guides the answer.
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What is a Home Appraisal?
In short, an appraisal is a value assigned to a home by a licensed appraiser, which in Canada means that the individual holds a designation like the AACI from the Accredited Appraiser Canada Institute, or the AIC from the Appraisal Institute of Canada.
An appraiser will typically provide a lengthy report that includes a thorough analysis of the property in question as well as comparable sales in the surrounding area and properties currently listed for sale.
Appraisals are often said to be more conservative than values provided by real estate agents and brokers, but this isn’t a hard and fast rule.
Can Real Estate Agents Give Appraisals?
A real estate agent or broker cannot provide an “appraisal” unless the individual holds one of the aforementioned appraisal designations, however, a real estate agent or broker can provide what’s called an “opinion of value.” The opinion of value can be as simple as a one-page letter with a value assigned to the property, but it can also take the form of a full Comparative Market Analysis (CMA) that is essentially identical to the appraisal, but without the name or designation.
Do you have more questions about the real estate industry? Here are a few more articles you might enjoy next:
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Who Needs to Get a Home Appraisal?
Why an individual needs an appraisal or an opinion of value can often affect which route to take.
Consider an individual who is looking to refinance his or her home; they’ll probably need an appraisal to satisfy the bank.
But consider the individual who is merely updating his or her net worth statement, and they’ll likely save the cost associated with a formal appraisal and simply ask a real estate agent for an opinion of value. (while some real estate agents charge for an opinion of value, many do not, including myself and my team).
Appraisals and opinions of value are often used in divorces or separations, in cases where a child is purchasing a property from their parents, or for matters pertaining to an estate when the owner has passed away.
What is Market Value in Real Estate?
When we get to the concept of market value, the conversation becomes a little more difficult.
Allow me to introduce the concept of market value by explaining what market value is not. Last week, I received a call from a prospective seller who told me the following:
“Well, we paid $1,125,000 for our house in 2021. We paid almost $40,000 in land transfer tax and we’ve put about $50,000 into the house. The real estate and legal fees are going to be about $80,000 so all told, our house has gotta be worth at least $1.3 Million.”
This is absolutely not how market value is determined!
What you paid, what you spent, and your transfer costs do not affect the “value” of the home, but rather they affect your break-even point in a market where prices have retreated since the peak in the spring of 2022, as I explained to the seller described above.
Sometimes, I think that sellers know this, deep down. But other times, I know that a seller simply doesn’t understand.
Simply put: Market value is the price that a buyer is willing to pay, and a seller is willing to accept.
A more complete definition would suggest that market value is the intersection of buyer demand and seller supply, in a free market, with little to no interference from outside sources.
Read these blogs next for more answers to your home-selling questions with these articles next:
- What are the Signs Your Home Will Sell Fast?
- What’s Negotiable When Selling Your Home in Ontario?
- Do You Need an Open House to Sell Your Home
The Problem with Market Value
Where this becomes problematic is that in order to determine market value with one-hundred percent certainty, it must be done in hindsight. That is to say that market value is what a buyer and seller agree upon, and thus we can only really determine market value once the property has been sold.
Of course, this doesn’t help home owners who are looking for a “current market value,” nor does it help prospective home sellers. This is why “market value” is a moving target; an estimate, at best, and an absolute pipe-dream, at worst.
Is it a good idea to price your home under market value? Read our blog right here to find out.
Market Value is Always Changing
The conversations in the market among listing agents, buyer agents, buyers, and sellers are always about “market value” but it’s really a non-stop negotiation.
Consider a home that’s listed for sale for $1,000,000. What is the “market value” of this home? Well, the seller thinks it’s $1,000,000 and the listing agent may or may not agree, but we would hope that the seller and the agent are aligned. A buyer and buyer agent might make an offer of $920,000, but that’s not what they think the house is “worth,” i.e. what the home’s market value is, since they’re hoping to negotiate the price down to $950,000.
Now, let’s say that the seller exclaims, “The market value of my house is $1,000,00 and I won’t take a penny less.” And now let’s say that, after being listed for four months, the next offer is submitted for $900,000, which is less than the first offer of $920,000.
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I ask again: what is the market value of this home?
It’s not $1,000,000. That’s the “list price” or that’s simply what the seller wants.
The true “market value” is what the buyer and seller will ultimately agree upon, but in this case, if the seller simply won’t agree on a realistic price, then do we determine that there is no market value?
Of course not.
But in a case where buyer and seller can’t agree, and thus a true market value – based on an actual sale price, can’t be determined, we would once again look for some sort of estimate based on market analysis.
In this case, it would seem to me that the market value is somewhere between $920,000 – $950,000.
But that doesn’t mean a seller must accept market value or sell for perceived market value, and this is why some houses don’t sell.
The overwhelming problem with defining “market value” is the inherent subjectivity, and this subjectivity is based on different needs and wants of buyers and sellers.
A buyer might only have a mortgage pre-approval for $900,000 but want a house listed for $1,000,000.
A seller might require a $1,000,000 sale price because he or she needs the sale proceeds for retirement, but that doesn’t mean the market value of the home is defined as such.
Does the Economy Impact Market Value of a Home?
Defining “market value” can be tougher or easier depending on the market cycle and economic climate.
In the spring of 2025, I wrote a very lengthy blog post on this subject: “Defining Market Value: All The Rage In 2025!”
In the blog post, I used historical market metrics to determine the “value” of a home, but in the spirit of the phrase, “you can make numbers say anything you want,” I demonstrated how even a market analysis based on completely objective data can be made subjective, depending on which data point you choose.
I can’t tell you how many negotiations I’ve been a part of where the agent on the other side of the call said, “This is what the house is worth,” only to have that number represent what the seller wants, or in some cases, what the house was worth in a better market.
Appraisal Vs. Market Value: The Final Word
But getting back to the original question about the difference between an appraisal and market value, I would offer that every seller hopes the appraisal amount represents a price floor when we’re in a hot market, but hopes that the appraisal amount acts as a guarantee when we’re in a cold market.
Whether you’re looking for an appraisal, an opinion of value, or a comparative market analysis, my team and I are happy to help.
Please feel free to reach out to discuss! Get in touch today by calling 416.642.2660 or emailing admin@torontorealtygroup.com.
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