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Appraised, Assessed, Market Values – What’s the Difference?

September 29, 2014
From Loan Officer Eddie Kirby

From Loan Officer Eddie Kirby

Many of your customers surf the internet, looking for homes and local home values from tax records to determine where they might want to live.  However, what they may not know is there is a big difference between the types of home values they will run across. The assessed value may not match the appraised value, which may be different than the market value. Why are there so many ways to determine a home’s value and which one is most accurate? The answer is that each value is used for a completely different purpose. They are all accurate, but only one is vital to the mortgage process.

By helping your clients understand the difference between the values, you’ll help set the right expectations, whether they are buying or selling a home.

Assessed value: This number is used to calculate the amount of property taxes a homeowner owes. All of the residents of a city or town pitch in to pay property taxes for things such as schools and services like garbage service or snow plowing. The amount they pitch in a percentage of the total bill, based on the value of their home. Homes that have a higher assessed value pay for more of the tax bill and homes with lower values pay less. The assessed value is the number that determines how much of the tax bill a homeowner pays. Assessments are done every few years, so they usually don’t reflect recent ups and downs in the market. The assessed value is not considered as a key factor in the mortgage process.

Appraised value: This calculation is used in the mortgage process, and it’s one of the most important aspects of the loan approval. An appraisal is done by an independent expert to determine the real-time value of a property, based on the home itself and it’s size, materials, and location as well as how it compares to other homes in the immediate area. Lenders require this independent appraisal to verify the loan they extend to the buyer isn’t more than the home is actually worth. Most often, the assessed value and the appraised value don’t match because the appraised value is more up-to-date, based on recent sales in the market.

Market value: This number is what a real estate professional believes is a fair price for the home, and one that a buyer and seller would likely agree upon. For an expert who is knowledgeable about the area, this number can be based on the supply and demand for homes in that price range and location, the amenities and condition of that home, and how it compares to others in that area.

 

Sometimes the agreed-upon value of a home, especially in a hot seller’s market, may be higher than the appraised value of the home. Think bidding wars in which buyers are willing to go above the seller’s asking price. Although exciting for the seller, when there is discrepancy in the market value and the appraised value, it can be a problem. There are three options to ensure the home sale goes through: 1) The seller must lower their price to match the appraised value. 2) The buyer must contribute more of a down payment to make up the difference. 3) A combination of both.

By educating both buyers and sellers on what different home values are used for ahead of time, you set more realistic expectations for your clients. In addition, by using a lender like myself, who uses only local appraisers who are experts in their area, you are more likely to receive a more accurate appraisal.

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