Evaluating the amount that a property is worth is important, not only if you intend to sell your home but also for property tax purposes. Although the terms assessed value and appraised value may sound similar, they don’t necessarily mean the same thing, which is why it can be vitally important to differentiate between the two.
What Is Appraised Value?
The appraisal value of homes is different from the assessed value in that it evaluates a property’s value at a specific point in time. The appraised value is vital to the loan underwriting process as it can determine how much money can be borrowed against a property. A professional appraiser calculates the appraised value during the buying process, which may differ from the fair market value of the home.
Low appraisal values can seriously affect what a mortgage company is willing to lend against a property, which is why it can be necessary to get a second opinion. Furthermore, if you are a buyer and a home appraisal comes in much lower than what a seller is asking for a listed house, this is something that should be seriously considered.
Is Appraisal Value the Same As Market Value?
Appraised value and market value are not always the same. The appraisal is a professional determination of what the home is worth, usually for the purposes of a mortgage lender. However, the market value is a reflection of what a buyer may be willing to pay for a home or property.
It should be noted that when conducting an appraisal, the fair market value is what is being estimated by the appraiser, but that does not mean that appraisal value and fair market value are always the same. A home can be listed for a certain amount, but buyers may be uninterested and offer less. Conversely, the property might be highly sought after and have buyers who are willing to pay more to purchase the home, which can lead to a relative increase in the market value. So, while the appraised value vs market value may be close, they’re not necessarily one and the same.
Assessed Value Is Used To Determine Your Home’s Property Taxes
Put simply, the assessed value (or tax-assessed value) of a home is “the dollar value assigned to a property to measure applicable taxes.” The assessed value is used to determine the amount that a home is worth for tax purposes. Generally, the tax-assessed value of a home is less than the market value and is usually based on comparable home sales and the results of an inspection conducted by a government tax assessor.
Assessed Value Calculation
The assessed value of a home is calculated by a local tax assessor, who uses a standardized method to evaluate the value of properties within a jurisdiction. This valuation is often a percentage of the market value. The specific percentage, known as the assessment ratio, varies by location and can be influenced by state or local laws. For example, if the property assessor determines the fair market value of the home is $500,000, and the assessment rate is 80%, the tax assessed value would be $400,000.
Assessment vs. Appraisal Value Differences
Assessed Value vs Appraised Value Purpose
The assessed value is used for calculating property taxes, while the appraised value is used for determining the market value of a property for transactions and financing.
Assessed Value vs Appraised Value Method of Calculation
The assessed value is calculated by tax assessors using standardized methods and often a percentage of market value, while the appraised value is calculated by licensed appraisers using detailed analysis. There are a number of different appraisal methods, including the cost approach and sales comparison approach.
Assessed Value vs Appraised Value Influence on Transactions
The assessed value has less impact on real estate deals as it primarily affects property tax obligations. On the other hand, the appraised value is extremely important and directly impacts the buying, selling, refinancing, and loan approval processes.
Assessed vs. Appraised Value Bottom Line
Understanding the difference between assessed and appraised values is crucial for property owners, buyers, and sellers. The assessed value affects property taxes, while the appraised value influences real estate transactions and financing. Both values are important, but they serve different purposes and are determined through different processes.