Assessed vs. Appraised: Understanding the Value of Your Home
The terms assessed value vs. appraised value often come up when debating the value of your home. While they might seem interchangeable, these valuations serve different purposes and are calculated in distinct ways.
Knowing the differences between these two types of valuations can help homeowners make informed decisions regarding property taxes, sales, and refinancing.
Get A Free Mortgage QuoteWhat Is Assessed Value?
The assessed value of a property is determined by local government assessors when calculating property taxes. This value is not necessarily reflective of the current market value but is used primarily for taxation purposes. Local tax assessors evaluate various factors, including the size, location, and condition of the property, as well as recent sales of comparable properties in the area.
How Is Assessed Value Calculated?
The method for calculating the assessed value can vary by jurisdiction, but it typically involves:
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Property Inspection: Assessors may physically inspect properties periodically to ensure records are accurate and to note any significant changes or improvements.
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Market Data Analysis: Assessors review recent sales data to understand market trends and adjust values accordingly.
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Assessment Rate: Applying a percentage rate, known as the assessment rate, to the market value of the property. For instance, if the market value is $200,000 and the assessment rate is 80%, the assessed value would be $160,000.
Purpose of Assessed Value
The primary purpose of the assessed value is to determine how much property tax a homeowner will pay. These taxes fund local services such as schools, emergency services, and infrastructure. Because the assessed value is tied to taxation, homeowners often prefer it to be lower to reduce their tax burden.
What Is Appraised Value?
The appraised value of a home is determined by a professional appraiser and reflects the property's current market value. This valuation is often required during the buying or selling process, refinancing, or securing a mortgage.
How Is Appraised Value Determined?
Appraisers use a more detailed and comprehensive approach to determine the appraised value, including:
- Property Inspection: A thorough inspection of the property’s interior and exterior, noting the condition, layout, and any upgrades or renovations.
- Comparative Market Analysis (CMA): Evaluating recent sales of similar properties in the area to gauge market demand and pricing.
- Market Conditions: Considering current market trends, interest rates, and economic factors that might influence property values.
- Property Features: Assessing the unique features of the property, such as upgrades, lot size, and amenities, which can add or detract from the value.
Purpose of Appraised Value
The appraised value serves multiple purposes:
1.Buying and Selling: It helps buyers and sellers agree on a fair price.
2.Refinancing: Lenders require an appraisal to ensure the property is worth the loan amount, protecting their investment.
3.Insurance: Insurers use appraisals to determine coverage amounts and ensure adequate protection for the homeowner.
Key Differences
Understanding the differences between assessed value vs. appraised value is crucial for homeowners. Here are the main distinctions:
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Purpose: Assessed value is for taxation purposes, while appraised value is for market transactions and financing.
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Calculation Method: Assessed value is often a percentage of the market value, while the appraised value is a detailed market-based valuation considering a wider range of factors.
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Frequency of Updates: Assessed values are typically updated annually or biannually, while appraised values are updated as needed, such as during a sale or refinance.
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Influence on Property Taxes: Assessed value directly affects property taxes, while appraised value influences buying, selling, and financing decisions.
Implications for Homeowners
Property Taxes
The assessed value of a home directly impacts property taxes. Homeowners should understand how their local government calculates this value and be aware of the appeal process if they believe their assessment is too high. Disputing an assessment can sometimes result in lower property taxes, providing financial relief.
Buying and Selling a Home
For those buying or selling a home, the appraised value is critical. Buyers want to ensure they are not overpaying for a property, while sellers want to price their homes competitively to attract buyers. An accurate appraisal helps facilitate a fair transaction by providing an objective measure of the property's market value.
Refinancing
When refinancing a mortgage, lenders will look at the appraised value to determine the loan amount. A higher appraisal can enable homeowners to access better refinancing terms, potentially lowering their monthly payments or allowing them to cash out equity for other purposes.
Insurance
Homeowners’ insurance often relies on the appraised value to set coverage limits. Ensuring the appraisal accurately reflects the home's value is essential for adequate protection. If the appraised value is too low, the homeowner might not have enough coverage to rebuild or repair in case of damage or disaster.
Appeals and Reassessments
If homeowners believe their property’s assessed value is too high, they have the option to appeal the assessment. This process typically involves presenting evidence, such as recent sales data or an independent appraisal, to support a lower valuation. Successfully appealing an assessment can lead to reduced property taxes.
On the other hand, if the market changes significantly, homeowners might seek a new appraisal to reflect their property’s current market value. This is especially important if they plan to sell, refinance, or update their insurance coverage.
Get A Free Mortgage QuotePractical Tips for Homeowners
Regularly Review Property Records
Homeowners should periodically review their property records to ensure accuracy. Incorrect information can lead to inaccurate assessments or appraisals.
Keep Track of Market Trends
Staying informed about local real estate market trends can help homeowners understand fluctuations in property values and anticipate changes in their assessed value and appraised value.
Maintain Your Property
Maintaining and updating your property can positively impact its appraised value. Regular maintenance, upgrades, and renovations can make a significant difference in how your home is valued.
Conclusion
Understanding the distinctions between assessed value vs. appraised value is essential for homeowners. The assessed value is used for calculating property taxes, while the appraised value represents the current market value of a property.
Both valuations play significant roles in various aspects of homeownership, from taxation to buying, selling, and refinancing. By grasping these concepts, homeowners can better navigate the financial aspects of owning property and make informed decisions that benefit their financial health.