Assessed Value vs Appraised Value

The PropertyClub Team
Jun 7th 2020
Appraisal vs. Assessment: Do you know what the difference between the assessed value and appraised value of a home is? We'll give you the rundown on both, including how they impact property taxes and home sales.

There are plenty of terms in the world of real estate that can make an important difference in your understanding of the buying and selling process of a home. In many cases, these terms and phrases can sound similar, which can be confusing and misleading when, in fact, they can mean very different things. 

If you have ever owned a home or put your house on the market, then you likely have heard both the terms assessed value, as well as appraised value. Evaluating the amount that a property is worth is important, not only if you are intending on selling 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 is an evaluation of 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. The appraised value is calculated during the buying process by a professional appraiser and may differ from the market value of the home. 

There are ways that you can improve the appraised value of your home, such as ensuring good appearance or fixing an old fence or bad plumbing. It is also important to remember, specifically in the case of appraisals, that they are the opinion of a single person. In many situations, it may be necessary to request a second evaluation, especially if the value that is determined is significantly less than expected. 

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?

In short, the appraisal and market values of a property can differ. 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 on in 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 as it pertains to 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. 

How is the assessed value of a home calculated?

The assessed value of a home is calculated by an assessor who first determines the fair market value of the property. That is then multiplied by the assessment rate, giving you the assessed value. 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. 

Appraisals vs. Assessments, what are the differences?

We’ve determined that a tax assessed home and an appraised home are two different things, but how do the processes differ? Usually, in the case of a tax assessment, the process is much simpler.  The appointed assessor doesn’t even have to enter the home, as they can determine the taxable value of the property based on previous years’ property data. However, they can conduct an in-person assessment if deemed necessary. 

On the other hand, an appraisal is a much more in-depth process. Since mortgage lenders want to make sure they are not over-lending on a property, they will have a professional appraiser conduct a thorough evaluation of the home. The appointed appraiser will visit and tour the property, looking at the building materials used, the overall condition, the size and home improvements made, as well as other factors that can affect the determined value of the house.

There are also cases where homeowners may use an appraisal to file a tax appeal in an attempt to lower property taxes. The relationship between tax assessed value and appraised value often varies from state to state. Some states, such as California, impose a rate limit on tax assessments, which prevents them from increasing too much from year to year. Because of this rate limit, it means that appraisal values will often far exceed the tax assessed values of properties. In other states, however, the tax assessment may be made every few years rather than on a yearly basis, which can lead to substantial jumps in the amount of taxes owed on a property. 

If you are planning on listing your home for sale, or even if you are in the market to buy, it is crucial to understand the differences between what a tax assessment values a home to be worth versus the evaluation of a professional appraiser. There can be significant differences between the two numbers, which in many cases works out in people’s favor. However, understanding assessed vs. appraised value is essential in ensuring that you know the true value of a home and that you are paying the correct amount of taxes or accepting realistic offers when listing the property for sale.