Assessed Value Vs Appraised Value: Key Differences and Uses
When buying or owning property, it’s essential to understand the concepts of “assessed value” and “appraised value.” While both relate to a property’s worth, they serve different purposes and are determined through different methods. Let’s explore what makes these values distinct and how they impact property taxes, real estate transactions, and overall investment.
What is Assessed Value?
The assessed value is an official value given to a property by the local tax authority. This value is used mainly to calculate property taxes. Every year, local governments assign a value to each property, which forms the basis for what property owners owe in taxes. This number is typically lower than the market value and doesn’t reflect the property’s current sale price.
How Assessed Value is Calculated
The process for determining assessed value varies by location, but most local tax offices look at factors like the property’s age, size, location, and any improvements or changes. Tax assessors may use recent sales of comparable properties in the area, but they aren’t as focused on market trends as appraisers. The assessed value is usually a percentage of the market value, called the assessment rate.
Role of Assessed Value in Property Taxes
Property taxes are calculated by multiplying the assessed value by the local tax rate, which can change depending on the local government’s budget needs. For example, a property with an assessed value of $200,000 in a town with a tax rate of 1% would owe $2,000 in annual property taxes. Since tax rates can vary widely, the assessed value significantly determines your tax obligations.
Pros and Cons of Assessed Value
The assessed value provides a stable basis for property tax calculations, making it helpful for local governments and taxpayers. However, it doesn’t always reflect a home’s real-time market or sale price, which can lead to confusion. For example, a home with a higher market value might be low due to local assessment methods or caps on assessment increases.
What is Appraised Value?
The appraised value represents a property’s estimated market value and is primarily used in buying, selling, or refinancing a property. Unlike assessed value, which is used for taxes, appraised value is meant to determine a property’s worth in the open market. Lenders typically require an appraisal to ensure the property is worth the loan amount.
How Appraised Value is Calculated
A certified professional appraiser examines several factors, including the home’s condition, recent sales of similar properties, and the neighborhood. They might also evaluate the home’s features, renovations, and location. Unlike assessed value, appraised value closely aligns with the current market conditions, which makes it a reliable gauge for transactions.
Appraised Value in Property Sales
When a buyer applies for a mortgage, the lender must confirm that the home’s value matches the loan amount. If the appraisal exceeds the sale price, the buyer may need to negotiate with the seller or cover the difference. An accurate appraised value protects the lender and the buyer from overpaying for a property.
Assessed Value vs. Appraised Value: Key Differences
The most significant difference between the two is their purpose: assessed value is for property taxes, while appraised value is for sales and lending. The assessed value is typically lower than the appraised value, and it’s adjusted less frequently. On the other hand, the appraised value reflects market dynamics and can change based on demand and local real estate trends.
Why Assessed Value Can Differ from Market Value
Typically, the appraised value is lower than the market value owed to taxes that need consistency over a period. Also, in some regions, laws limit the maximum annual increase in the assessed value, resulting in potential discrepancies, especially in areas experiencing high and rapid real estate growth. This is mainly because the market value used in appraisals changes quickly and often represents what buyers are willing to pay at the time.
Importance of Both Values in Real Estate
The concepts of value assessment and appraisal carry significant weight in real estate. The assessed value affects property tax, which influences the cost of ownership as long as an individual owns the property. In contrast, the appraised value is attached to the loan provision and buying and selling transactions. Knowledge of every value is fundamental for owners to manage financial liabilities and properly gauge investment performance.
How to Use Assessed and Appraised Values Together
Property owners must consider both values, especially if they want to sell or refinance the property. Should the assessed value be deemed excessive, one can file an appeal with the appropriate county or local tax office. Appraised value allows sellers to price their property accordingly, and buyers to evaluate if the price is reasonable.
Common Misunderstandings and Myths
- Myth: Assessed value equals market value – False. Assessed value is for tax purposes and often doesn’t reflect the market price.
- Myth: The appraised value is always correct. While usually accurate, it’s still an estimate based on available data.
- Myth: Assessed value stays the same – Assessed values may be updated annually or when major property changes occur.
FAQs
1. What’s the main difference between assessed and appraised value?
The assessed value is for tax calculations, while the appraised value estimates market worth for sales and loans.
2. Can the assessed value be higher than the appraised value?
This is rare, as assessed values are usually lower. However, unique local tax rules might cause variations.
3. How often is the appraised value updated?
An appraisal is usually updated when a property is bought, sold, or refinanced.
4. Why would I appeal my assessed value?
Appeals are typically made if you believe the assessed value is too high, leading to unfairly high property taxes.
5. Does the assessed value affect my mortgage?
No, the assessed value primarily affects property taxes, while the appraised value influences mortgage terms.
6. Who calculates the appraised value?
A certified appraiser determines this value based on property condition, market data, and comparable sales.
Final Thoughts
Most property owners understand why assessed and appraised values differ. As can be seen, each value has its own role in real estate, whether it is for taxation or for sales. Appraised and assessed values can help one determine the value of a property and even its tax worth. So, it is clear that any real estate decision benefits from knowing these values. In so doing, owners are able to control their costs and investments.
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