When involved in a real estate transaction, it is helpful to understand the key differences between assessed and appraised values. Both values are estimates of a particular property's worth that lenders and other interested parties use for various financial purposes.

However, they differ, as the assessed value primarily applies to taxation issues, while an appraisal evaluates the market potential for selling or renting out a property based on recent sales trends. Understanding both types of valuations can be beneficial when determining how much money to loan or invest in any given property.

What is a Home's Assessed Value?

An assessed value is assigned to a piece of real estate for taxation. A local taxing authority, such as a county assessor's office, usually calculates it. Taxing authorities use this value to determine how much property tax each homeowner will pay annually.

The assessed value of a home may be lower than its actual market value because certain exemptions and discounts can reduce the amount owed in taxes.

What is an Appraised Value?

An appraised value is an estimate of the potential market worth of a particular property. When buying or selling a home, lenders typically require an appraisal to ensure they are not loaning more money than necessary on the purchase, thereby limiting their risk in case of default.

Appraisals are conducted by trained and certified appraisers who look at various factors toto assign a value, such as recent sales trends, property size, home condition, location, and amenities. The appraisal value is typically more accurate than an assessed value because it considers current market conditions.

Both values can be helpful when deciding on a particular property; however, they should not be considered equal. Understanding the difference between assessed and appraised value can help you make more informed decisions when buying or selling any real estate transaction.

Types of Assessed Value and Their Uses

A property's assessed value is used primarily for taxation purposes. Several different types of assessments can be applied to a property, each with its distinct purpose.

A full assessment

A full assessment is the most common type and reflects the property's fair market value as determined by local taxing authorities. This value is generally used to determine how much taxes are due on a given piece of real estate.

An exempt assessment

An exempt assessment typically applies when specific exemptions, such as homestead or agricultural exemptions, reduce the taxes owed on a particular piece of land.

A special assessment

A special assessment may also be applied when additional improvements or infrastructure projects are made to a certain area. This type of assessment is calculated based on the benefits received from the improvements and is usually used to pay for such projects or improvements.

A rollback assessment

A rollback assessment applies when an owner purchases a property that has been previously undervalued. In this case, taxes may be adjusted to reflect the property's market value.

Assessed values are important because they not only provide a way for local governments to collect necessary tax revenue but also play a role in helping maintain accurate home sales records and monitor how market trends affect the value of the real estate.

Types of Appraisals and Their Uses

Appraisals are estimates of a real estate property's potential market value and typically involve an assessment of the property's condition, location, amenities, size, and other features. Appraisal values may be used for various financial purposes, such as determining how much money to loan on a purchase or investing in real estate.

The type of appraisal used depends on the situation and needs of the parties involved; however, there are generally three main types:

A desktop appraisal

A desktop appraisal, an automated valuation model (AVM), is the most cost-effective and quickest way to estimate a property's value.

An exterior-only appraisal

An exterior-only appraisal assesses the exterior features and condition of a property. This type of appraisal is usually used when there is limited information available about the interior of a home or if access is restricted due to safety reasons.

A full appraisal

A full appraisal involves an in-depth examination of the inside and outside features, including floor plans, electrical systems, and any other improvements made, while assessing potential market value based on current trends in the area.

This appraisal typically requires more time and money than other types but offers more detailed information and is often used in complex real estate transactions.

Understanding the differences between appraisals and assessments can help you make more informed decisions when buying or selling a property and better manage your finances. With an accurate estimate of property values, lenders can be more confident in their investments, while buyers and sellers have a better idea of how much money they get for their properties.

Benefits of Understanding Assessed Value and Appraised Value

Accurate records

Assessed values provide local governments with accurate home sales records, useful for monitoring market trends and assessing property taxes. Appraisals offer more detailed information about the potential value of a piece of real estate, helping buyers, sellers, and lenders make informed decisions when buying or selling properties.

Investment security

An Accurate assessment of a property's worth helps lenders protect their investments by limiting their risk in case of default.

Open communication

Understanding assessed and appraised values can help facilitate open communication between buyers, sellers, lenders, and other interested parties in any real estate transaction.

Tax savings

HAccurately assessing a property's value can help those who own the real estate save on their taxes. For example, certain exemptions and discounts can reduce the amount owed in taxes.

Accurate pricing

Understanding appraised values is important for buyers and sellers as it gives them a better idea of a fair price for any given piece of real estate.

Easier transactions

An accurate estimate of a property's market worth makes it easier to negotiate and finalize real estate transactions quickly and efficiently.

Financial stability

Knowing the true value of your assets or potential investments helps you make more informed financial decisions that can lead to long-term financial stability.

Understanding the difference between assessed and appraised value is important for all parties involved in real estate transactions.

An accurate appraisal or assessment of a property's potential market worth can help buyers, sellers, lenders, and taxing authorities make informed decisions when buying or selling real estate.

FAQS

What is appraised or fair value?

Appraised or fair value is an estimated market value of a property based on current trends in the area. This value considers conditions, location, amenities, and property size.

Is the assessed value the purchase price?

No, the assessed value is not the same as the purchase price. Local taxing authorities determine the assessed value, usually used to calculate taxes due on a particular piece of real estate.

How long is an appraisal good for?

The length of time that an appraisal is good for depends on the purpose it is being used for. Generally, appraisals are valid for six months to one year, depending on market conditions and other factors.

Conclusion

Knowing the differences between an assessment and an appraisal is important when looking at real estate. Assessed values are commonly used to calculate taxes, while appraised values are often used in finance decisions.

However, both values can be used to assess a property's current market value. Before making any decisions regarding your property, it is always a good idea to consult with experts to ensure you get accurate and current information on its worth.

With this knowledge, you can make more informed decisions about buying, selling, or refinancing your home. Taking the time to research assessed value versus appraised value will help you understand what impacts the bottom line when it comes to the value of your home.