Determining the value of your home depends on who is evaluating and what purpose they have for doing so. Appraisals and assessments have very different uses. You will probably want an appraisal to be as high as possible and an assessment to be as low as possible.
A real estate appraisal is an estimation of market value. Lenders usually require appraisals for homes on which they are asked to lend money in the form of a mortgage or home equity loan. Appraisals are performed by trained professionals who are licensed by the state in which they operate. The appraiser may be hired by you or by the lender, but is an impartial third-party who provides an objective analysis of the property’s value.
An appraisal includes things like a comparison of your property with similar properties in the area, the location of the property, such as in a development or in a rural area, any issues about the surrounding area, such as flood zones or access problems, any issues on the property itself, and the current condition of the real estate market in the area. An appraisal will include a street map of the area showing the property location, photographs of the property, and a sketch of the building with dimensions. An appraisal requires an inspection of the property, both interior and exterior.
The appraisal may be completed using different value models, cost and sales comparison. The cost approach looks at the cost to rebuild the existing structure less accumulated depreciation plus the value of the land. The sales comparison approach evaluates comparable properties and price per square foot in an attempt to determine what a buyer is likely willing to pay based on what is available on the market in the local area. Many appraisals blend the results of both price models.
An assessment, on the other hand, is conducted by a municipality when evaluating properties for the purpose of levying property taxes. Municipalities look at the overall value of properties in an area and the specific use of a particular property. For example, commercial properties like professional offices are assessed at a different rate, even though they may be in buildings that are just like homes in the same area. Property tax may also vary depending on the last date the property changed hands. Today, computer technology streamlines the process of assessment and allows for sophisticated statistical models. Many states offer homeowner’s exemptions, which reduce the assessed value of a property when it is the owner’s primary residence.
Municipalities typically send assessment notices yearly in advance of the issuance of property tax bills for the year. A provision is made for an appeals process if the property owner does not feel that the assessment is correct.
In a stable real estate market, appraisal and assessment values may be similar, but never make the assumption that if you have one that you know the other. Market fluctuations, lag time from assessment to notification, and recent renovations or improvements may cause a disparity between the two numbers.