Assessed Value Vs. Appraised Value: A Beginner’s Guide
What is a home’s assessed value? What is its appraised value? These two terms might seem similar, but they have some key differences.
Appraised value estimates a property’s general worth as determined by a home appraiser and is used in the mortgage approval process. On the other hand, the assessed value is determined by local tax assessors and affects how much you’ll pay in property taxes. Both are ways to determine the value of a home.
We’ll take a look at how assessed and appraised value differ in practice, and how each valuation may influence your real estate investment decisions.
Home Value: Your Home’s Worth And How It’s Determined
A home’s worth and its potential sale price are based on three main types of evaluations: fair market value, assessed value and appraised value. Each assessment serves a specific purpose to determine the value of a property.
Fair market value is defined as the price that a property might be expected to sell for in an open market. In contrast, an assessed value estimates a property’s worth based on input from government tax assessors and determines how much an owner can expect to pay in property taxes.
As for appraised value, consider it a professional appraiser’s opinion of a property’s worth. An appraisal informs what a buyer might expect to pay and what a lender is willing to lend for a property.
How Do Assessed And Appraised Values Work?
When considering a property’s assessed versus appraised value, it helps to have a better sense of how these estimates work.
Your home’s tax-assessed value represents a yearly estimation of the property’s value. A government tax assessor will assign your property a valuation each year as a method of measuring property taxes. This form of valuation is determined by the government.
How Tax Assessment Works
When conducting a review, your local tax authority assigns a tax-assessed value to your home to determine how much you owe in property taxes. As part of the process, the tax authority has a professional assessor review your property data and visit your home to determine your residence’s tax-assessed value.
Local government bodies employ and direct assessors to research and assign fair, tax-assessed values for the property based on other properties in your area.
Assessors use several factors to determine this value, including historical property data, home inspection findings and comparative market analysis. They may also include the home’s appraised value, fair market value and any improvements made to the property.
Assessed values are often lower in amount than appraised values or true market values on a property. The tax-assessed value serves a distinct purpose: to help your local government determine how much you should be paying in taxes. These taxes go toward funding public works and services. Note that tax assessors may apply different standards to their work depending on where you reside.
An appraised value represents an expert’s estimation of what your property is worth. It’s an analysis of a property to determine a suitable sales price under current market conditions. A home appraisal is an independent and professional opinion of the fair market value of a property. This means that two home appraisers may arrive at different valuations.
How Home Appraisal Works
Before issuing a home loan, mortgage lenders order an appraisal. This appraisal ensures that the borrower isn’t taking out a loan for more than the home is worth. There are three main parts to an appraisal: An inspection of your property, a review of comparable sales (comps) in your area and issuing a final appraisal report.
An appraiser will analyze a property’s main characteristics like square footage and number of rooms. In addition, they’ll look at comps in the region to get a sense of what similar homes are selling for. Your appraiser may consider factors such as the home’s general state of repair and home improvements.
Then they’ll combine their research and issue their findings in a formal report. This report will state the home's appraised value and list observations about the property. It will also note the calculations used to arrive at the number.
How An Appraisal Vs. Assessment Can Impact A Home’s Value
Both a tax assessment and home appraisal can impact your property value. This can have a big impact on your bottom line as a homeowner or a home buyer. For example, if you’re assessed at a higher property valuation, it may increase the amount that an owner or potential buyer will pay in annual property taxes.
Assessed value can have a big impact on a home’s value and can even affect your ability to purchase a property. For example, if your home appraises for less than the requested mortgage amount, you might need to make up the difference out of pocket to move forward with the sale.
The reverse could also happen. Let’s say the house you’re considering buying appraises for more than you offered. If the property appraisal comes in higher than expected, the buyer gets to enjoy some immediate equity when they purchase the home.
Tax Assessment Vs. Appraisal: Disputing The Different Valuations
If you think your appraisal or assessment is wrong, you’re free to dispute the valuation.
Disputing a tax assessment requires contacting or filing a formal appeal with your local tax authority. You’ll want to keep records of any transactions or interactions relating to your property, and research comps in your area before reaching out. Each jurisdiction will have a different process, so you’ll need to contact local officials to find out the next steps.
If you don’t agree with the results of your first appraisal, you can try to appeal the decision. You might go back to your appraiser armed with additional information and comps to plead your case. They may listen or they may not. Another option is to pay for a second or even third appraiser to offer another opinion.
Be aware that your mortgage lender needs to be involved. They may decide to go with the first appraisal if it’s not drastically off. Additional appraisals also require more time, which you may not have if you have a specific closing date. Either way, an experienced real estate agent can advise you if you run into complications with your appraisal.
Why Home Value Is Important
Your home’s value is critical for several reasons. It provides a sense of how much you could make from the sale of your property. It also gives a better sense of how much house you can afford when housing hunting.
Home valuations can help you make an educated guess about the amount of property taxes you’ll pay each year. And they can affect whether you’ll be able to get a mortgage on a home you’ve bid on.
Additional Ways To Determine Your Home’s Value
There are a few ways you can get a sense of your property’s worth without getting a formal appraisal. You can try:
- Checking with a REALTOR®. A real estate professional, like a REALTORⓇ or real estate agent, can help you estimate the current market value of your home.
- Researching comps in your area. Looking at your local real estate market can help give you an idea of the range of prices you might get for your own home.
- Using home valuation tools: Online calculators and appraisal tools can help give you an idea of what your home might be worth.
There are many different ways to approximate value. But when it comes to appraisals and assessed values, an official valuation can give you a definitive number.
The Bottom Line: Know The Value Of Your Home Before You Sell
Your home’s tax-assessed value gives a sense of what your annual property tax payments might look like. On the flip side, an appraisal assigns a value to a home used by buyers, sellers and mortgage lenders. These valuations can fluctuate. This means it’s important to have a current estimate of a home’s value before selling or buying a property.
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