Two Very Different Methods of Valuation, with Two Very Different Outcomes
I often hear homeowners ask me to give them an, "appraisal," of their property, or what I think the, "assessed value," or "assessment" is. So here you go.
Both of those terms sound similar but are often mistaken for one another and are not on not interchangeable. They are wholly different in who does them, how they are used and for what purposes.
An assessment, or assessor or assessed values are all terms surrounding tax valuations. Municipalities have to meet their budget obligations to provide services and infrastructure, perform repairs and replacements of buildings, and pay employees among a host of other duties like providing police, fire and public safety services.
Most counties or towns have an assessment office, in charge of collecting taxes from its citizens to pay for these budget items. Some of these offices have an assessor whose job it is to apportion the amount of taxes that need to be collected from each owner.
Owners typically pay taxes based on the size and value of property they own. These valuations are typically based on market value, but the assessments aren't updated often, so as the market increases and decreases in value, the assessment often doesn't change for a long time. That means that as the market heats up and houses sell for more money, the tax assessment may lag behind the market value. Conversely, as the market falls and homes are worth less, the opposite is true. Owners pay more than market value.
When municipalities fall short of their revenue needs, they have a few options in addition to lay-offs, reducing spending, etc. They can raise taxes. Sometimes an across-the-board percentage increase will be introduced, so that everyone pays their current market value plus some flat percentage. Sometimes a complete re-evaluation is done and homes get updated assessment values.
An appraisal is conducted by a state-licensed appraiser, usually for the benefit of a lender, to determine if the amount requested to be loaned is appropriate for the property. Banks want third-party knowledge and expertise to confirm that the property is worth the amount of money being loaned so that if the buyer defaults on the loan, the bank will have an asset upon which they can reasonably be expected to recoup their losses.
Appraisers are licensed by each state. Some appraisers are independent contractors; others work for small or large firms. Some appraisers specialize in residential appraisals, others in various aspects of commercial real estate.
Appraisers use current and past-market data to create valuations for properties. They look at the surrounding geographic area, other like-properties, and try to focus on properties that have recently experienced buying or selling activity.
Appraisers can also be hired by homeowners to get a value for a private sale, to determine the worth of a new or potential addition or renovation.
Real estate agents provide neither. Agents perform a CMA or Comparative Market Analysis for sellers to determine that starting selling price, or for buyers to gauge and guide an initial offer. Neither can be used to get a loan or pay taxes. CMA's are used to determine a home's selling price to potential buyers keeping in mind the competition and market trends.
Appraisals and assessments serve two different purposes, and done by two different kinds of people and are used for very different reasons. Be sure you're asking for the right person!
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