What Is Assessed Value vs. Appraised Value?

Property valuation influences real estate ownership costs and transaction outcomes. Homeowners and prospective buyers often encounter “assessed value” and “appraised value.” Understanding how these distinct values are determined and utilized is important for navigating the real estate landscape.

Assessed Value Explained

Assessed value is a valuation assigned by a local government tax assessor’s office. Its primary purpose is to calculate property taxes. This value is distinct from a property’s market value, which is what it might sell for in an open market.

Assessed value is commonly determined as a percentage of the property’s market value, known as the “assessment ratio.” This ratio can vary significantly depending on the local jurisdiction. For instance, if a property has a market value of $250,000 and the local assessment ratio is 70%, its assessed value would be $175,000.

Tax assessors consider various factors when determining this value, including property characteristics like size, age, and features, alongside recent sales of comparable properties in the area. Due to the large volume of properties that require valuation, assessors typically use “mass appraisal” techniques. These methods involve statistical models and standardized procedures applied to groups of properties, rather than individual, detailed valuations.

Assessed values are updated periodically, with frequencies ranging from annually to every two or three years, depending on local regulations. Updates may also occur if significant changes are made to a property, such as major renovations or additions. Because of these periodic updates and the use of assessment ratios, the assessed value may not always precisely reflect the current market value of a property.

Appraised Value Explained

Appraised value is a professional, unbiased opinion of a property’s market value at a specific point in time. A licensed, independent appraiser conducts this evaluation. The appraiser’s objective is to determine the most probable selling price a property would command in an open market.

Lenders commonly require a property appraisal for mortgage approval, refinancing, or home equity loans. The appraisal helps ensure that the loan amount does not exceed the property’s worth, serving as collateral. Sellers also use appraisals to accurately price homes before listing.

Appraisers primarily use the “sales comparison approach” for residential properties. This involves analyzing recent sales of comparable homes (“comps”) in the vicinity. Appraisers make adjustments for differences in features, condition, age, and lot size. These comparable sales are typically recent (within the last six months) and located nearby.

Other valuation methods, though less common for typical residential properties, include the cost approach and the income approach. The cost approach estimates the cost to rebuild the property new, minus depreciation, plus the land value, and is often used for new construction. The income approach, which assesses a property’s potential to generate income, is primarily applied to investment properties like rental units rather than owner-occupied homes.

Comparing Assessed and Appraised Values

Assessed value and appraised value differ in purpose and method. Assessed value is for property tax calculation, serving a governmental revenue function. Appraised value provides a market-based estimate for financial transactions, such as securing a mortgage, refinancing, or guiding a home sale.

Government tax assessors determine assessed values using mass appraisal techniques for large numbers of properties. This involves applying a uniform assessment ratio to market values. Appraised values are conducted by independent, licensed appraisers who perform a detailed analysis of a single property, focusing on specific characteristics and recent comparable sales.

Assessed values are updated on a fixed schedule, which can range from annually to every few years. This periodic nature means that an assessed value may not always keep pace with rapid changes in market conditions. Appraised values, conversely, represent a snapshot of the market at a specific moment in time and are highly sensitive to current real estate trends.

A property’s assessed value, due to varying assessment ratios and less frequent updates, may not always mirror its true market value; it is often lower than the fair market value. Appraised value, however, aims to be a precise estimate of the current market value, reflecting what a willing buyer would pay. This difference is important for property owners and buyers, as a higher appraised value can indicate greater equity and a stronger selling position, while a lower assessed value can result in reduced property tax obligations. The appraised value directly influences how much a lender is willing to finance, impacting loan amounts and terms.