An appraisal is a professional estimate of a property's market value, conducted by a licensed appraiser. The resulting figure is the appraised value. Market value is the most probable price a property would sell for in an open and competitive market. Although price and value are often used interchangeably, they are distinct concepts: price is what is actually paid, while value is what something is objectively worth.
To arrive at a credible valuation, appraisers rely heavily on comparable sales, or "comps"—recently sold properties similar to the subject in size, location, and condition. A comparative market analysis (CMA) is a pricing analysis performed by an agent using similar properties, while a broker price opinion (BPO) is a less formal estimate of value provided by a broker. The price-to-income ratio, which compares median home price to median household income, is another commonly used benchmark in valuation discussions.
A few valuation challenges are worth noting. The appraisal gap arises when an appraisal comes in below the agreed-upon purchase price, creating friction between buyer, seller, and lender. In contrast to appraised and market values, assessed value is the figure assigned by a government for tax purposes, calculated using a property tax assessment and applied through a mill rate—the amount of tax per $1,000 of assessed value.