Knowing the value of a home is important when you want to buy or sell it. Determining a home's value is also necessary for property tax purposes. Most home valuations use one of two different methods: appraisal and assessment. Theoretically, the appraised value of a home should equal its assessed value. However, this is rarely the case in practice.
A home's appraised value is a professional appraiser's estimate of the home's fair market price. To determine the appraised value, the appraiser conducts a physical inspection of the home and surrounding neighborhood. He may also consider the recent sale prices of comparable homes in the area. A home's assessed value is the value recorded for property tax purposes. Tax assessors determine the value of a home based on its previous value as well as how it compares to similar homes in the area. An assessment is typically figured without a physical inspection of the house.
When determining appraised value, the appraiser tries to estimate the price that the average buyer would be willing to pay for the home in the current market. Conversely, tax assessors don't typically consider market activity when determining the home's assessed value. While an appraisal usually involves an intensive physical inspection of the inside of the home, tax assessors rarely conduct inspections. Assessments and appraisals both consider the home's location and sale prices of comparable homes in the area.
Differences in Purpose
Tax assessors use a home's assessed value to determine the owner's property tax liability for the following year. However, a home's appraised value is most commonly determined for lending purposes. When a buyer makes an offer on a home, his mortgage lender will appraise the home's value to determine the maximum loan amount it is willing to approve. If the appraised value of the home is lower than the value of the borrower's requested mortgage, the lender generally won't approve the loan.
When discrepancies exist between a home's appraised value and assessed value, the cause is typically a difference in procedure. For example, a tax assessor doesn't consider the state of the current housing market when he makes his assessment. If the housing market is in crisis, the home's appraised value may be significantly lower than the home's tax assessment, which might have been pegged to a much earlier date, such as Jan. 1 of the year in which it is figured. Discrepancies between these two values may also exist if the home's owner has recently made improvements to the structure. Because the appraiser physically inspects the home, he considers these improvements when determining the home's appraised value. Conversely, the tax assessor doesn't inspect the home and won't see the improvements.
- Jupiterimages/Brand X Pictures/Getty Images