Assessed vs. Appraised - What's the Difference?
When buying or selling a home, all the numbers and terms floating around can be confusing – especially if this is your first time dealing with a real estate transaction.
A question often asked is “what’s the difference between assessed and appraised value?” There are often some misunderstandings about these figures so we’re here to simplify it for you.
Agent Mike Jensch mentioned that agents are taught that a home has three values: Assessed (what it’s taxed at), Appraised (the amount the lender says it will loan), and Market (what someone is willing to pay). Agent Carla Dragon adds a fourth value: Emotional, which in her description is what the seller feels their home is worth. This is a figure that comes up early in the process, often before the other three, and holds a lot of value to the homeowner, but it is not the best number to work with.
Penny Daniels says she sees that there are some words that are used interchangeably that shouldn’t be, like appraisal and assessment. “Both are values place on property but by different entities.”
Assessment is determined by a county tax assessor that is appointed by the town whose job it is to establish a tax value for the property. This value is multiplied by an assessment rate (given to the assessor by the state) which represents a fixed percentage set by each tax jurisdiction to determine the taxable value of your property. “They consider the location, style, condition and grade of construction,” says Daniels. “In the upstate New York counties, they assess at 100% market value according to the real property offices.”
It is important to note that assessors do not re-assess a property every year, and this can have a factor in determining the CURRENT market value for your home if it hasn’t been done for a while.
For example, your house was assessed two years ago and that is the amount that is on the tax records this year as well. You have recently been thinking about selling and are looking to establish the selling price. Your REALTOR® should provide you with a CMA, or comparative market analysis, which is a report comparing your house to other similar houses that have sold in the area in the recent months. In this market, chances are homes similar to yours are selling for higher than the assessed value because they are in demand due to inventory shortages.
Remember, your home was assessed two years ago, and it is likely that the assessor did not enter your home to evaluate the condition of the interior, but now you’re comparing your house to other similar houses that have been sold within the last 6-12 months.
Penny continues: “How the sales market is going is a strong indicator of what your house is worth at that current time. The assessment is generally based on how the market was only at the time of the assessment and is not updated as often. They are both indicators of value, and done similarly, but one is much more timely than the other, giving a more accurate snapshot for sales and purchase price.”
The appraised value typically represents the home’s fair market value (what a buyer might expect to pay), and takes into consideration the overall condition of the home as well as any curb appeal, size, amenities like a pool, and the state of the current housing market. It is not always the same as the assessed value when a county has an assessment rate of less than 100%. Agent Barbara Harrigan states that an appraiser needs to go through licensing just like a Realtor® does. Banks/Lending Institutions require an appraisal before they invest in a loan to the buyer. Harrigan says “The appraisal amount must be somewhat near the asking prices or you won’t get the loan unless you can carry the cash.”
Appraisers work similarly to Assessors in that they have to compare homes in the area to determine a value. Generally, the appraisal is higher than the assessed value because it is likely more recent, and it takes more into consideration including interior features. As a homeowner looking to sell, you obviously want to get the best price for your home. But at the same time, if a buyer is looking for a home and see it is assessed at less than what the asking price is, they may have questions as to why the numbers are different, and if they can use the assessed value as a negotiating tool.
Bottom line, those numbers can be very confusing to a first-time home buyer. Your agent should be well-versed in the difference between these two very important amounts and can assist you with any questions you have.