There are two little words in the language of real estate that are confusing to many home buyers and sellers. Those words are
assessed and
appraised. Trust me, these are two totally different things, but many people use them synonymously. Let's review the difference.
As a homeowner, you will be confronted with property taxes. I talk to homeowners everyday that grumble about paying these taxes because they can be a financial burden. Property taxes are determined by property tax
assessments. These are provided by the
assessor in the county where you reside and
assessments are used
solely for taxation purposes. So, why do so many people rely on them for determining their property value on the open market? The simple truth is that most of us think that
assessed and
appraised mean the same thing.
Look at it this way. The higher the
assessed value of your home, the higher your real estate taxes will be. As a home seller or buyer, you want to have the
lowest assessed value possible. It is a good thing to have a low comparative valuation in relation to the market value of your home. Unfortunately, if you decide to sell your home and your
assessed value is very low in comparison to the selling price, chances are that the
assessed value will increase in relation to the sales price once it passes through the county records. Bummer. The buyer now has to deal with an increased
assessment on the property and the increased real estate taxes that go along with it. The good news is that it takes about three years for the
assessment to reach its full value in relation to the market value.
County assessors report that
assessed valuations are supposed to be within 90 percent of the actual market value of a property. Technological advances in property valuation techniques have increased the assessor's ability to
assess values on properties by making neighborhood comparisons. Nonetheless, this is not the rule across the board for all properties. Some valuations have not changed dramatically in several years, particularly in areas where sales are very limited. In some instances,
your assessed value might actually be higher than the market value of your home (meaning that you are paying taxes on a property value that is not supported by the market). Bummer again. The good news is that you can protest the assessed value if you have documentation to support the fact that the
assessed value is higher than the actual market value of the home (this is where a real estate agent might come in handy!)
So now that you understand what is meant by
assessed value, how does that differ from
appraised value? Prior to listing a home, a real estate agent will typically prepare what is known as a comparative market analysis (CMA) to determine the listing price for a home. This is NOT an appraisal, but it follows the principles of appraising to a lesser extent. Most real estate professionals and lending institutions rely on the
appraised value of a home to determine the true market value. Once you have agreed to purchase a home, your bank will require an appraisal be performed by a licensed appraiser. This person is
NOT someone affiliated with the property or the sale of the real estate in any way. This person will make efforts to review all aspects of your property from square footage to condition to sales history in order to give you an
independent, unbiased opinion of the value. Sometimes the value aligns with the purchase price, sometimes it is higher, and sometimes it is lower. All in all,
the purpose of the appraisal is to support or reject the sales price of the property to guarantee that your lender is making a safe investment by lending you money. The appraised value is a reliable tool for determining the true market value of your property.
To summarize, do not be fooled into thinking that the assessed value is a true representation of the market value of your property. As the saying goes, "the only sure thing in life is taxes," but the saying does not indicate that the county assessor knows what your property is worth on the open market.
Do not base your home's purchase or selling
price off of the assessed value of the home! This will often be
an inaccurate evaluation of the market value, and you may be selling
your property for less than it is truly worth. Rely on the expertise of a real estate professional or a professional appraiser to identify the market value based on their knowledge of comparative market analysis or appraisal. Welcome Home.