How Appraisals and Assessments Differ
Below is a MRR and PLR article in category Finance -> subcategory Real Estate.
Understanding the Difference Between Appraisals and Assessments
Overview
Many people mistakenly believe that appraisals and assessments are identical or should at least yield the same value. In reality, they can differ significantly. Let's explore what sets them apart.
Appraisals
An appraisal is an estimate of a property's market value conducted by a professional appraiser using various methods. For income-generating properties, the appraiser might calculate the value based on expected income. For other properties, they might consider the replacement cost, assessing how much it would cost to rebuild the structure today.
Appraisers often rely on comparable sales to determine a home's market value. They examine sales of similar nearby properties to establish a price estimate, prioritizing the most comparable recent sales.
Buyers and sellers frequently encounter appraisals when a lender requires a market value evaluation before approving a loan. This helps ensure the property's value justifies the loan amount. One key indicator here is the contract price agreed upon by the buyer and seller, reflecting a mutual value in an open market.
Assessments
An assessment, on the other hand, is the value your local government assigns to your property for tax purposes. The method for determining this value varies by jurisdiction. Some areas equate it to market value, while others use a percentage. However, accuracy can vary.
For instance, I once co-owned an investment property that was re-assessed by the county at 140% of our sale listing price. Despite being real estate professionals, our appeal was unsuccessful, resulting in higher taxes until the property sold at the listing price.
Conversely, I assisted in selling a farm for far more than its assessed value, highlighting how assessments can also underestimate market worth.
These examples illustrate a trend where businesses and investors might face inflated assessments, while long-term homeowners may benefit from lower ones. This variation can be influenced by concepts like land use, where properties are taxed based on current use rather than potential development value.
Conclusion
Given these discrepancies, relying solely on assessed value to determine market value is not advisable. Appraisals and assessments serve different purposes, and their values can diverge significantly. It's important to understand these distinctions to make informed real estate decisions.
You can find the original non-AI version of this article here: How Appraisals and Assessments Differ.
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