If you’re a homeowner or considering becoming one, you’re probably familiar with the terms real estate appraisal and real estate assessment. These concepts are important in the housing market, but often mistaken for one another since their purpose and calculation methods differ. In basic terms, appraisals typically feature in mortgage lending and refinancing, while assessments are used for calculating property taxes. Of the two, real estate appraisals are generally considered more precise. Let’s understand how they differ:
REAL ESTATE APPRAISAL
In a typical real estate appraisal, the appraiser inspects both the interior and exterior of your home to establish its value. This process is vital when applying for a fresh mortgage or refinancing an existing one. The value derived from an appraisal is heavily influenced by the prevailing market conditions which can shift significantly in a short timespan. As such, its value might vary over the years. Owing to these factors, an appraisal is often perceived as a more reliable indicator of your home’s value compared to an assessment.
REAL ESTATE ASSESSMENT
Your property undergoes an annual real estate assessment, usually at the start of the year. This helps local governments to calculate your property tax based on your home’s value. Face-to-face assessments are typically reserved for newly built homes or those undergoing significant renovations. Otherwise, they utilize a host of factors such as the initial buying price, the size of the house, improvements, and local property sale prices to establish your home’s assessed value. The assessor also makes an educated guess about the housing market’s direction for the year when forming your home’s assessment. Because of this speculative element and the fact it is conducted at the year’s outset, property assessments do not usually offer the same accuracy as real estate appraisals.
Homeowners reserve the right to contest any assessment they believe is unfair, though many only do so when they perceive their home’s valuation as excessive. If you believe your home’s assessment is too high, it’s wise to contest it as it can heavily influence your property taxes.
If you’re in the market for a new home or considering refinancing your existing one, it pays to understand how a real estate appraisal works. Should you decide to sell, bear in mind the buyer usually covers the cost of the appraisal.
Knowing the ins and outs of real estate assessments is equally beneficial. Major property renovations could mean a higher assessment and subsequently more taxes. As a homeowner, you can challenge an assessment you consider unjustified. Not every appeal is successful, but with the potential to reduce your tax liability, it’s certainly worth considering.
From SmartAsset.com
