How Much Higher Is Appraised Value Than Assessed Value?

Imagine this: You're preparing to sell your home, and you're faced with two distinct values: the appraised value and the assessed value. While these numbers might sound similar, they serve different purposes and can vary significantly. The appraised value, determined by a licensed appraiser, is an estimate of your property's market value based on its condition, location, and comparable sales. On the other hand, the assessed value is used for tax purposes and often represents a percentage of the appraised value or a fixed rate set by local tax authorities.

Understanding the difference between these values is crucial, especially when navigating the real estate market or handling property taxes. This article will delve into the factors influencing the disparity between appraised and assessed values, explore how they impact homeowners, and offer practical advice on managing these differences effectively.

The Appraised Value: This is the value that a professional appraiser assigns to a property. Appraisers use various methods, including the sales comparison approach, cost approach, and income approach, to determine this value. The sales comparison approach compares the property to similar properties that have recently sold, while the cost approach assesses the value based on the cost of replacing the property minus depreciation. The income approach evaluates the property's potential to generate income, typically used for investment properties.

The Assessed Value: This value is determined by local tax authorities to calculate property taxes. It is often a percentage of the appraised value or a fixed rate set by the municipality. The assessed value may not be updated as frequently as the appraised value, leading to discrepancies between the two.

Factors Influencing the Difference:

1. Frequency of Assessment Updates: Appraisals are often updated based on market conditions, whereas assessments may remain static for several years until a reassessment occurs. This can lead to differences between the current market value (appraised value) and the value used for tax purposes (assessed value).

2. Assessment Ratios: Local jurisdictions may use different ratios to calculate assessed values. For example, a jurisdiction might assess properties at 50% of their appraised value. This ratio can vary significantly depending on local regulations and policies.

3. Property Improvements: If you've made significant improvements to your property, the appraised value may increase more quickly than the assessed value. Assessments may lag behind improvements due to less frequent updates.

4. Market Fluctuations: Real estate markets can be volatile. Changes in market conditions can cause the appraised value to fluctuate more rapidly than the assessed value, especially if the last assessment was conducted during a different market cycle.

5. Local Tax Policies: Tax policies and assessment practices vary by location. Some areas might reassess properties more frequently, while others rely on long-term assessments. Understanding your local tax policies can help explain why your assessed value differs from the appraised value.

Impact on Homeowners:

• Selling a Property: When selling your home, the appraised value is more relevant than the assessed value. Buyers and their lenders rely on the appraised value to determine the fair market price. If the appraised value is significantly higher than the assessed value, it might indicate potential for a higher selling price.

• Property Taxes: The assessed value directly affects your property taxes. If your assessed value is significantly lower than the appraised value, you might benefit from lower taxes. However, if local tax authorities conduct a reassessment, your taxes could increase to reflect the appraised value more accurately.

• Refinancing: When refinancing your mortgage, lenders use the appraised value to determine how much they are willing to lend. A higher appraised value can result in better loan terms and more borrowing power.

Managing Differences:

1. Appeal Your Assessment: If you believe your assessed value is too high compared to the appraised value, you can appeal the assessment with your local tax authority. Providing evidence from recent appraisals or comparable property sales can support your case.

2. Stay Informed: Keep track of local assessment schedules and market conditions. Being aware of when your property will be reassessed can help you anticipate changes in your property tax bills.

3. Consider Market Trends: Understand that the real estate market is dynamic. Regular appraisals can provide a more accurate picture of your property's value, while assessments might lag behind market changes.

4. Consult Professionals: Working with real estate professionals, such as appraisers, real estate agents, and tax advisors, can help you navigate the complexities of property values and taxes.

Conclusion:

The disparity between appraised and assessed values can be significant and influenced by various factors. Understanding these differences and their implications is essential for homeowners looking to sell, refinance, or manage their property taxes effectively. By staying informed and seeking professional advice, you can better navigate the real estate market and make informed decisions regarding your property.