Home values – while seemingly straightforward – are widely misunderstood. A recent headline in the business section of Southern California’s Orange County Register provides a great example.

It read, “Patient buyer gets $35,000 discount waiting out overconfident seller.” The story described a transaction that fell through because the home’s value came in lower than the sales price. Months later, the homeowner agreed to sell for the appraised value and the buyer paid far less than the original price – but it was not a discount. The buyer ended up paying what the property was actually worth.

A property’s value is not the asking price – or even what a buyer is willing to pay. In cases where a mortgage is used to finance a property, value is established by a real estate appraisal. An appraisal is required by the lender to approve financing.

Real estate appraisers are not employed by the bank or mortgage company. They also are generally licensed and certified in the states where they perform work. The appraisers use sales of comparable properties to determine property values and consider mitigating factors such as upgrades, condition and other variables.

Homeowners and buyers alike need to understand the difference between price and value to avoid wasting time and money.