Assessed Value vs Appraised Value in Real Estate

Many homeowners and buyers often find themselves confused by the terms assessed value and appraised value. Understanding the difference between both values is important because it may affect how much you pay in property taxes, the price you set or offer when selling or buying a home, and the outcome of a refinancing application. In this article, we will explain what each value means, how they are determined, and why knowing the difference may help you make better financial decisions in real estate matters.

What Is Assessed Value vs. Appraised Value?

"Assessed value" and "appraised value" are two common terms when the worth of a home or property is discussed. While they may appear similar, they serve varied purposes and are calculated in different ways.

The assessed value of a property is the dollar amount assigned to it by a local government, usually a county assessor, for property tax calculation purposes. It does not reflect the full market value of the home but is a percentage of the property's estimated market value, adjusted based on tax laws, exemptions, and assessment rates set by local authorities. For instance, a home with a market value of $400,000 may have an assessed value of $320,000 depending on the assessment ratio in that jurisdiction.

On the other hand, the appraised value of a property is an estimate of the property's current fair market value, usually determined by a licensed appraiser. This value is based on a thorough audit and examination of the property as well as recent sales of comparable homes in the area. Appraised values are commonly used in real estate transactions, such as buying, selling, or refinancing, to ensure the price of the home reflects its actual worth.

Assessed Value vs. Appraised Value: Key Differences

The following are key differences between assessed value and appraised value: 

Understanding Assessed Value

Assessed value is an important concept in property valuation and must be properly interpreted by property owners. Understanding how the tax assessed value vs appraised value works can help homeowners better manage their financial responsibilities.

The assessed value is typically determined by a local tax assessor who reviews the property and assigns a value based on local tax laws and property characteristics. Unlike appraised value, which aims to reflect the current market worth of a home, the tax assessed value is designed primarily for taxation purposes.

To calculate the assessed value, the assessor may use a few different methods. In many cases, it is based on a percentage of the property’s market value. For example, if a home is worth $300,000 on the open market and the local assessment rate is 80%, the assessed value would be $240,000. Alternatively, some municipalities use a mill rate system, which applies a specific tax rate per thousand dollars of assessed value.

Assessed values are typically updated regularly. However, the frequency of updates depends on the local government’s rules. Some jurisdictions reassess properties annually, while others wait every two or three years.

Understanding Appraised Value

The appraised value of a home is an expert estimate of its current market worth, typically provided by a licensed real estate appraiser. In order to determine the appraised value, the licensed appraiser conducts a detailed review of the property, including evaluating the condition of the home, the size and layout, and any upgrades or improvements. The appraiser also examines recent sales of comparable properties, also called "comps", in the same area, as well as broader market trends and the condition of the surrounding neighborhood.

Appraised value is especially important during a home purchase or refinance. Lenders often use it to confirm that the loan amount aligns with the property’s actual value, helping to reduce financial risk.

Why Assessed vs. Appraised Value Matters

Understanding the difference between assessed vs appraised value may significantly impact your financial decisions as a homeowner or buyer. One of the direct effects of knowing the differences between these two terms is on property taxes. The assessed value is what local governments use to calculate how much you owe in annual property taxes. A higher assessed value means higher taxes, regardless of the home’s actual market value.

In the home buying and selling process, sellers often base their asking price on the appraised value, which reflects current market conditions. Buyers, on the other hand, may see a lower assessed value and assume the property is worth less than its selling price.

Understanding the difference between assessed vs appraised value also matters when refinancing a mortgage. Lenders rely on the appraised value to determine the loan-to-value (LTV) ratio, which is a key factor in loan approval and interest rates. If the appraised value comes in lower than expected, it may limit your refinancing options or require private mortgage insurance.

Common Scenarios Where the Difference Matters

Understanding the distinction between assessed value and appraised value may help you navigate important property-related decisions with confidence. These may include decisions in the following scenarios:

• Property Tax Dispute: Since property taxes are based on the assessed value, homeowners sometimes challenge this figure if they believe it is too high. In such cases, showing that the appraised value is significantly lower may serve as supporting evidence during an appeal to lower the tax bill.
• Home Purchase Negotiations: If you are selling your home, you may use an appraisal to justify your asking price. If you are buying a home, you may refer to the assessed value as a basis for offering less than the seller's asking price.
• Refinancing a Mortgage: Lenders primarily rely on the appraised value to determine loan eligibility and terms. A higher appraisal may lead to better rates or eliminate the need for private mortgage insurance. However, the assessed value remains unrelated to the lender’s evaluation but may still impact ongoing property costs.
• Estate Planning or Divorce Settlements: In settlements associated with estate and divorce, the appraised value of a property is typically used to fairly divide property assets or calculate inheritance. In such situations, the appraised value reflects the current market worth, while the assessed value may be outdated or not relevant for equitable distribution.

Can Assessed and Appraised Values Be the Same?

While the assessed value and appraised value of a property may sometimes be close, they are usually different due to the way each is calculated and used. These values may be close in areas where property assessments are updated frequently and reflect current market trends. However, they often differ because the assessed value is determined by a local tax assessor for property tax calculation purposes, while the appraised value is established by a licensed appraiser to reflect the home’s current market value.

The difference between the values also depends on how aggressive or conservative the tax assessor is in valuing property. Some jurisdictions may keep assessed values intentionally lower than market value to maintain consistent tax rates, while others may update them more frequently and aggressively to match rising home prices.

In contrast, the appraised value is more sensitive to local market volatility. If home prices in a neighborhood are rising or falling quickly, the appraised value will reflect those changes more directly. This makes appraisals a better snapshot of the property’s actual market worth at a specific point in time.

How To Dispute Assessed or Appraised Value

If you believe that your property's assessed or appraised value is inaccurate, you may dispute it by taking certain formal steps. To dispute the assessed value of a property, you may need to file an appeal through your local assessor's office. This process typically begins with a written request or application submitted within a specific time frame after receiving your property tax notice. Be aware that you may need to provide supporting evidence such as recent appraisals, photographs, or sales data from similar properties in your area. If your appeal is denied, many jurisdictions allow you to escalate the case to a review board or local court.

While challenging an appraised value, especially in the context of a home purchase or refinance, is less formal, it is still possible. You may start the process by requesting a copy of the appraisal report and reviewing it for errors, such as incorrect square footage or overlooked features. If there are discrepancies, you may submit a reconsideration of value to the lender, along with additional documentation. In some instances, you may be allowed to order a second appraisal at your own expense.

Note that if the dispute process for an assessed or appraised value becomes complex, you may consult with a real estate professional or attorney.