Understanding the Difference Between Assessed Value and Appraised Value in Housing

Understanding the Difference Between Assessed Value and Appraised Value in Housing

When buying, selling, or owning a home, you might encounter the terms assessed value and appraised value. Though they may seem interchangeable at first glance, they serve very different purposes and are calculated in distinct ways. Understanding these differences can help homeowners, potential buyers, and real estate professionals make informed decisions. In this blog post, we’ll explore the key distinctions between assessed value and appraised value, and why each is important in the housing market.

What is Assessed Value?

The assessed value of a property is the value determined by a local government or taxing authority for the purpose of calculating property taxes. It is a critical figure for homeowners, as it directly influences how much they pay in property taxes each year. The process of determining the assessed value typically involves a mass appraisal approach, where the local assessor uses a set of standardized guidelines to assess the value of properties within the same area.

In many cases, the assessed value is lower than the market value of the home. The government may choose to assess properties at a fixed percentage of their market value (for example, 80% of the home’s current market value). As a result, the assessed value may not reflect the most recent changes in market conditions or specific factors that affect a home’s individual appeal.

Local governments may also update assessments periodically, such as every few years, rather than annually. These updates are based on factors such as property size, location, age, condition, and improvements made to the property, like renovations or new construction.

What is Appraised Value?

The appraised value of a property, on the other hand, is an estimate of the home’s current market value, determined by a professional appraiser. This value is typically used in the context of buying or selling a home, particularly when securing a mortgage. Appraisers are licensed professionals who consider a wide range of factors to determine the value of a property, including:

• Recent sales of comparable homes (known as comps)
• The home’s size, layout, and condition
• Its location, including proximity to schools, amenities, and other key factors
• Market trends and current demand in the area
• The home’s age, maintenance, and any recent updates or renovations

The appraised value is often seen as a more accurate reflection of what a property is worth in today’s market because it is based on a detailed, individualized assessment. It is also important to note that the appraised value is primarily used by lenders to ensure that a property is worth the loan amount being requested. If the appraised value comes in lower than the sale price, the lender may not approve the full loan amount.

Key Differences Between Assessed and Appraised Value

1. Purpose:

   • Assessed Value: Used to calculate property taxes.
   • Appraised Value: Used to determine the market value of a home for real estate transactions or financing.

2. Determining Entity:

   • Assessed Value: Set by local government or taxing authority.
   • Appraised Value: Determined by a licensed professional appraiser.

3. Frequency of Updates:

   • Assessed Value: Typically updated on a set schedule, such as annually or every few years.
   • Appraised Value: Determined for each individual transaction and may change based on market conditions.

4. Methodology:

   • Assessed Value: Based on mass appraisal methods, using broad market data and standardized criteria.
   • Appraised Value: Based on a comprehensive evaluation of the property’s specific characteristics, including recent sales of similar homes.

5. Impact on Homeowners:

   • Assessed Value: Directly affects property tax bills.
   • Appraised Value: Affects the outcome of home sales, purchases, and mortgage lending.

Why Does This Matter to Homeowners and Buyers?

For homeowners, the assessed value is particularly important because it determines how much you will pay in property taxes. If you disagree with the assessed value, you may be able to challenge it, depending on local rules and procedures.

For buyers and sellers, the appraised value is a more relevant figure when it comes to understanding a property’s true worth in the current market. It can also impact the financing of a home purchase—if the appraised value is lower than the sale price, the buyer may need to renegotiate the price or come up with additional funds to cover the difference.

Conclusion

While both assessed and appraised values are related to the value of a home, they are used for different purposes and are determined in distinct ways. The assessed value impacts your property taxes, while the appraised value plays a critical role in real estate transactions and financing. By understanding these differences, homeowners and prospective buyers can navigate the housing market with greater confidence and make better-informed financial decisions.