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Understanding Appraisal Vs. Assessment

Scott Steinberg3-minute read

May 19, 2021

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What’s the difference between an appraisal and an assessment – and how are these terms defined in real estate jargon? While it’s not uncommon to mistakenly hear these phrases used interchangeably, as it turns out, they’re not actually the same in practice.

Although both can refer to ways of measuring a property’s value, each takes widely different approaches to the calculation of this figure. Noting this, understanding the difference between an appraisal and an assessment can help you become more aware of what your home is ultimately worth and how it may be taxed, and to stay more informed.

Appraisal Vs. Assessment: What’s The Difference?

A home appraisal and assessment are both relative measures used to determine the value of a home. However, as above, the terms cannot simply be swapped out for one another, as neither is interchangeable.

The main distinctions between an appraisal and an assessment are the general purposes that they serve. Put simply, appraisals (which are based on recent sale prices of properties in your area and other factors) are used to determine your home’s actual value. Assessments are relative measures of value that indicate how this same property will be taxed by the government instead.

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How Do Appraisals Work?

Property appraisals are conducted by state-licensed appraisers, typically by a financial institution that is serving as a mortgage lender. These appraisals – which impact the home selling price and mortgage amount – are provided as a form of assurance to lenders and potential home buyers that help ensure that they’re not being asked to loan or borrow more money on any given property than it is actually worth.

Bearing this in mind, appraisals are based on a more in-depth evaluation than tax assessments. Appraisals, which are conducted as part of the mortgage underwriting and due diligence process, help both buyers and sellers by providing assurance that property values align with proposed purchase prices.

How Does An Appraiser Evaluate Your Property?

An appraiser serves to help determine your property’s current market value. Primary factors that can influence home values include the property’s location, the condition of the home, and any amenities or special features. Appraisers analyze the following factors as part of their evaluation:

  • Total square footage
  • Major structural improvements, such as additions or renovations
  • Number of bedrooms
  • Architectural style
  • The HVAC system
  • Foundation
  • Basement condition
  • Built-in appliance upgrades

As part of the process, a property appraiser will visit your home, tour the inside of the building, and conduct a thorough review of your home’s current operating state, building materials, improvements, overall size, and general wear and tear. They will also compare your real estate holding to other comparable homes in your nearby area.

After doing this research, and weighing all of these factors, the appraiser will render an estimate on what they believe to be the fair market value of your property. (An estimate that you can have a second appraiser revisit and review if you feel this number has been under or overreported.)

How Do Assessments Work?

Local governments – cities, municipalities, towns, etc. – take in significant revenues by levying property taxes upon local homeowners. These sums are used to pay for assorted expenses such as public works, public safety, schools, parks, and other shared resident benefits.

Local jurisdictions set tax rates and home assessment methodologies and employ assessors to review property data and visit local homes to determine their assessed value. These home assessors may take into account various factors such as home inspection findings, prior years’ worth of property data, and comparative market analysis to arrive at a property’s assessed value, which is considered the most widely accepted dollar value indicator.

Note that the tax assessments these assessors provide are primarily for purposes of taxation. These findings will not necessarily represent or reflect the total amount that you could obtain through an actual sale of the property on the open market.

How Do Appraised Value Vs. Assessed Value Compare?

The appraised value of your home represents the home’s fair market value (what a buyer might expect to pay if you listed your house for sale on the market), while its assessed value is used to determine property taxes (which increase the larger that your assessed value becomes).

Tax assessed values are largely utilized by the government, though your mortgage lender may use these findings in computing how much it requires you to put away each year in escrow. An appraised value is the finding which most frequently comes into play if a property is being bought or refinanced, however.

The Bottom Line

Your home’s appraised value effectively reflects what you might expect to get in exchange for the sale of the property if you put it up at market.

Its tax-assessed value is instead used to determine how much you can anticipate paying each year in property taxes.

Mortgage lenders need to know the former value to ensure that they’re not lending a home buyer more money than a property is worth, and the latter value to know how much to ask you to put away annually in escrow. Appraisals will also come into play in the mortgage refinance process.

To learn more about other important steps in the home buying process, be sure to check back here at our Learning Center frequently.

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Scott Steinberg

Hailed as The Master of Innovation by Fortune magazine, and World’s Leading Business Strategist, award-winning professional speaker Scott Steinberg is among today’s best-known trends experts and futurists. A strategic adviser to four-star generals and a who’s-who of Fortune 500s, he’s the bestselling author of 14 books including Make Change Work for You and FAST >> FORWARD. The CEO of BIZDEV: The Intl. Association for Business Development and Strategic Planning™, his website is www.AKeynoteSpeaker.com.