What Is the Difference Between Appraised and Assessed Value?

The value of real estate can be a complex concept, often discussed using terms that might seem interchangeable but serve distinct purposes. Among these, “appraised value” and “assessed value” are frequently encountered, leading to common misunderstandings. While both relate to a property’s worth, they are determined through different processes and for different objectives, each carrying unique implications for property owners.

Appraised Value

An appraised value is an independent, professional estimation of a property’s market value. It is typically required for significant financial transactions like securing a mortgage loan, refinancing, or selling. This valuation assures lenders the amount they lend aligns with the property’s actual worth. Licensed appraisers conduct these evaluations.

The methodology primarily relies on the “sales comparison approach,” where the appraiser analyzes recent sales of comparable properties, known as “comps.” Adjustments are made for differences in features, condition, size, and location. Appraisers also consider the property’s overall condition, amenities, recent improvements, and broader market trends. The estimated value reflects current market conditions.

Assessed Value

The assessed value is a valuation assigned to a property by a local government to calculate property taxes. It determines a property owner’s annual property tax liability, funding local services like schools, public safety, and infrastructure. Local tax assessors are responsible for these assessments.

Assessments often involve mass appraisal techniques, valuing large groups of properties using standardized methods and statistical models. This approach typically uses an assessment ratio, a percentage of the property’s estimated market value. For instance, if a property’s market value is $300,000 and the local assessment ratio is 80%, the assessed value would be $240,000. Assessed values are updated regularly, though they may not always precisely reflect current market fluctuations.

Comparing the Values and Their Impact

Appraised and assessed values differ in purpose, methodology, and responsible entities. Appraised value establishes a property’s market worth for transactional purposes, primarily for mortgage lending and sales. Assessed value determines property tax obligations.

The methodologies also diverge. Appraisals involve individual property analysis by a licensed appraiser, focusing on recent comparable sales and property features. Assessments, conversely, utilize mass appraisal techniques and apply an assessment ratio to a broader set of properties, conducted by government tax assessors. An appraisal provides a snapshot of value for a specific transaction, while assessed values are periodically updated for ongoing tax calculations.

For property owners, the impact of each value is direct. An appraised value directly influences the maximum loan amount a lender will provide, ensuring the loan does not exceed the property’s collateral value. If an appraisal comes in lower than the agreed-upon sales price, it can necessitate renegotiation or require the buyer to cover the difference out-of-pocket.

Conversely, the assessed value directly dictates the property tax bill. This is calculated by multiplying the assessed value by the local tax rate, often expressed as a millage rate. A higher assessed value directly translates to a higher annual property tax payment, influencing a homeowner’s ongoing financial burden.