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If you’ve ever bought or sold a home, you know that the appraised value may not always match the sale price or the asking price of the home. To add to this confusion, if you look at the finer details of home listings, you may notice that the tax-assessed value can vary widely from the asking price. It’s easy for homeowners to get frustrated while trying to understand the difference between these values and how they’re determined, so we’ve outlined the details.

Understanding Home Appraisals

A home appraisal is an independent, professional opinion of the fair market value of a home, or the likely sales price it would bring if offered in an open and competitive real estate market. The appraised value sets the amount that may be mortgaged for a property. Appraisals protect homeowners and lenders alike from buying a home that’s overpriced or refinancing a home for more than it’s worth.

There are three main parts to a home appraisal:

  1. Inspection: A licensed appraiser comes to the property and inspects its size, condition, function and quality
  2. Comparables: The appraiser researches similar homes in your area and compares recent sales to determine fair market value
  3. Final Appraisal Report: The appraiser compiles all of the data to issue a final appraisal report

Sometimes the sale price of a home will be higher than its appraised value. Most often, this is because comparable homes in the area don’t match up with the agreed-upon sales price – in other words, buyers could find very similar homes for a lower price nearby. For a purchase transaction, this means you need to renegotiate, walk away from the deal or bring more money to the table. In a refinance, a low appraisal may mean you’ll have to restructure the details of your loan or that it may no longer make sense for you to refinance. In any case, mortgage lenders rarely finance an amount greater than the appraised value of the home.

Understanding Tax-Assessed Value

Part of owning a home is paying property taxes to the municipality where you live. Your property tax dollars fund public programs and services such as roads, schools, police, parks and more.

Your local tax authority will assign a tax-assessed value to your home to determine the amount you owe in property taxes. The method of assessment varies depending on where you live. While some states require a tax assessment every time a property is sold to a new owner, communities typically only reassess tax values when they become outdated. Significant remodeling projects can also trigger a reassessment. However, while the tax rate in your area may change from year to year depending on your local community’s budget, your home’s tax assessment is unlikely to change often.

Sometimes, communities offer exemptions or assistance for property taxes, such as a discount for veterans or disabled persons, or an incentive for purchasing property in a specific neighborhood.

The moral of the story is that you should do your research before making an offer. Look at recent home sales in the area and find comparable properties so you’re not surprised by the results of your home appraisal. For property taxes, look online for tax data or call the local tax authority so you know how much you’ll have to budget for each month.

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This Post Has 5 Comments

  1. Another, type of loan is New Construction.
    As we have recently experienced,… Appraisers are not all the same,… My hope is with new deregulation’s financial institutions can have a better vetting process with appraisers to disqualify the bad ones. They should not have so much control over the pricing of real estate!

  2. Good information, until you get to assessed value, giving any percentage of assessed value to sale price is misleading. As almost every state has different laws around assessed value and taxable value. We are property tax consultants and educaters, working worldwide.

    1. Hi Keith:

      Thanks for reading! Although the author of this article chose to put those values in to give readers an idea of what they might be paying in taxes, you’re right that there can be a ton of variation between states and localities. We’ve taken these estimates out of the article.

      Thanks,
      Kevin Graham

  3. I’ve been doing my home refinancing with QLOANS. So far I have enjoyed the program(s) they offer to people , such as myself. You really can’t believe what they can do for you, financially, until you call.

    I appreciate what QuickenLoans has done for myself. I also enjoy reading their ZING newsletter . It can be very informative.
    Thank you QUICKEN LOANS, and a big thank you to everyone involved in my refinance. Also, thank you Ms. Decker for publishing “ZING” newsletter.
    Krissy from Kuna, Idaho.. 😉

    1. Hi Krissy! I’m so glad to hear you’ve had a such great experience with Quicken Loans, and that you find our ZING Blog and newsletter so helpful. Thank you very much for sharing your thoughts and appreciation. Have a wonderful Thanksgiving!

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