How Much Higher Is Appraised Value Than Assessed Value?

Property valuation involves two distinct figures: appraised value and assessed value. Both relate to a property’s worth but serve different purposes and are not identical. Understanding these distinctions is important for homeowners.

Understanding Appraised and Assessed Values

Appraised value represents a professional appraiser’s opinion of a property’s market value at a specific point in time. This valuation is typically conducted for transactions such as mortgage lending, sales, or refinancing. Appraisers determine this value by considering factors including recent sales of comparable properties (comps), the property’s physical characteristics like square footage and condition, its location, and current market trends. The goal of an appraisal is to estimate the most probable price a property would sell for in an open and competitive market.

In contrast, assessed value is the value assigned to a property by a local government assessor primarily for property tax purposes. This value is often a percentage of the property’s market value and forms the basis for calculating annual property taxes. While appraisers are independent professionals, government assessors value all properties within their jurisdiction to ensure fair taxation. The assessed value is generally more stable than market value and is updated periodically, often annually or every few years.

Factors Leading to Value Differences

Appraised and assessed values frequently differ due to several factors. One reason is the use of assessment ratios, where the assessed value is a fixed percentage of the market or appraised value, as determined by local or state law. For instance, if a property has a market value of $200,000 and the local assessment ratio is 80%, the assessed value would be $160,000. This ratio can vary significantly between jurisdictions, with some states assessing at 100% of market value and others at lower percentages.

Another factor is the difference in assessment cycles and timing. Appraisals are typically conducted for specific real estate transactions and reflect current market conditions. Conversely, property assessments are performed on a cyclical basis, often every one to five years. This means they may not always keep pace with rapidly changing market values, especially in dynamic real estate markets, leading to a lag where the assessed value does not fully capture recent market appreciation.

Legal limitations, often called “caps,” also create discrepancies. Some jurisdictions limit how much an assessed value can increase in a given year, regardless of market appreciation. These caps can cause a growing gap between the property’s true market value (as reflected in an appraisal) and its assessed value over time. For example, some regulations might limit annual assessment increases to a certain percentage, even if market values rise much higher.

Different valuation methodologies also contribute to the divergence. Appraisers use detailed, property-specific approaches, such as the sales comparison approach, analyzing recent sales of similar homes. Assessors often rely on mass appraisal techniques and formulas to value large numbers of properties efficiently. These mass appraisal methods may not capture the unique nuances or specific improvements of individual properties as precisely as a detailed appraisal. While improvements might be immediately reflected in an appraisal, they may only gradually influence the assessed value upon reassessment.

The Role of Assessed Value in Property Taxation

The assessed value of a property directly determines the amount of property tax a homeowner pays annually. The calculation involves multiplying the property’s assessed value by the local millage rate, also known as the tax rate. A millage rate represents the amount of tax per $1,000 of assessed property value; for example, a mill rate of 10 means $10 in tax for every $1,000 of assessed value. These rates are set by various local taxing authorities, including counties, school districts, and municipalities.

Property tax exemptions can reduce the taxable value of a property, lowering the tax burden. For instance, a homestead exemption, available for a primary residence, reduces a portion of the home’s value from taxation. Other exemptions may be available for specific groups, such as veterans, seniors, or individuals with disabilities, further reducing the taxable amount. While appraised value reflects a property’s market worth, the assessed value, adjusted by any applicable exemptions, directly dictates the property tax bill.

Reviewing Your Property Assessment

Homeowners who believe their assessed value is inaccurate can review and potentially appeal the assessment. The first step involves obtaining your property’s assessment information from the local assessor’s office, often available online. This information includes details about how the assessment was calculated, allowing for an informal review with the assessor’s office. Addressing any errors early can lead to corrections without a formal appeal.

If an informal review does not resolve the issue, a formal appeal can be filed with a review board or tax tribunal, which has specific deadlines. To support an appeal, homeowners should gather evidence such as recent sales data of comparable properties. Other useful evidence includes professional appraisal reports, photos documenting property defects or needed repairs, and documentation of any inaccuracies in the assessment record. The appeals board will consider only the evidence presented at the hearing, so thorough preparation is important.