Appraised Value verses Assessed Value can be one of the most misunderstood concepts in property values.
An appraisal is a formal estimate of market value performed by a licensed appraiser using analytical procedures and formulas. The appraiser will use the sales price of recently sold, nearby homes, with similar features (comparables), making adjustments for any differences between the subject property and the homes being comnpared. Most commonly, the appraiser will use a combination of three formula’s to determine market value; 1) Market Data Approach (Direct or Comparable Sales) 2) Cost Approach (Cost appreciation/determining the cost to rebuild and/or 3) Income Approach (present worth of future income/income producing properties).
Appraisals are done most commonly when a property is to be financed or refinanced, but may also be requested for a variety of other reasons. We suggest that homeowners perform an appraiser once every few years to establish a value baseline, especially in cases of Eminent Domain or other scenario’s which could negatively impact your home’s value.
Assessed Value is assigned to a property by local government as a basis for determining property taxes. The City/County Assessor’s office uses basic property information provided when the home was built, plus any improvements made which required a permit, in combination with any recent sales/refinance history, to make their tax assessment. Typically Assessor’s do not visit the inside of a home, so there assessments will most likely not include basic improvements like countertops, upgrades to light and plumbing fixtures, flooring, painting and other improvements which do not require a permit or general maintenance and cleanliness. As such Assessed Values can vary widely and cannot accurately be used to determine a home’s Market Value.
That being said, keep in mind….
- Assessment = Basis for determining taxes
- Appraisal = Basis for determining Market Value
Here are a few great points by Kim Daugherty, Real Estate Checklists and Systems, http://www.realestatechecklists.com
- Appraisals provide an objective opinion of value, but it’s not an exact science so appraisals may differ.
- For buying and selling purposes, appraisals are usually based on market value — what the property could probably be sold for. Other types of value include insurance value, replacement value, and assessed value for property tax purposes.
- Appraised value is not a constant number. Changes in market conditions can dramatically alter appraised value.
- Appraised value doesn’t take into account special considerations, like the need to sell rapidly.
- Lenders usually use either the appraised value or the sale price, whichever is less, to determine the amount of the mortgage they will offer.
© Copyright the National Association of REALTORS® – Used with permission from Kim Daugherty, Real Estate Checklists and Systems, http://www.realestatechecklists.com
Intro Author: Lee Gosselin, Associate Broker & Owner