Assessed Value, Appraised Value, Market Value

May 18, 2014

The Value of a Home for Sale is never an exact science. No one wants to hear that as no seller wants to sell for less than current value and no buyer wants to pay more than current value. But the truth is there is absolutely no way to approach the concept that a home HAS an actual current value that is completely accurate within $100 this way or that. Still, most sellers will be OK with that as long as the error is in their favor and most buyers will agree with that as long as the error is in their favor.

Assessed Value merely determines the amount of “your share” of real estate taxes. This surprises people as they like to think it establishes the amount of tax they will pay, but when the tax value goes down and their taxes go up, they quickly learn that is not the case. If your neighbor’s house is assessed higher than yours then your neighbor’s tax will be higher. But if all assessed values are reduced, that does not mean that any one will pay less in taxes as a result. Your share of the tax needed to run things is determined by your assessed value…but the amount needed to run things pretty much always goes up regardless. If you think about that for awhile a light bulb will go on that says “of course…what was I thinking?!?” 🙂

Appraised Value is the amount an appraiser will associate to your property, depending on who hires the appraiser and the purpose of the need to value it. If you see an actual appraisal you will be dumbfounded by the method used to calculate that value. If you have a home with a basement, as example, that you list as 2,400 finished square feet with 1,400 sf on the kitchen level and 1,000 finished square feet under that level, almost always the appraiser will call your home a 1,400 sf home. Go find any appraisal done on your home and look at it careful. Almost never will an appraiser include the basement square feet on the same basis as the non-basement or lower level sf even though it is heated living space. Nor will an appraiser give the same price per square foot to the level under the kitchen as he will for the level above the kitchen. It’s a Uniform Appraisal form nationally. So it will never conform to what you think an appraiser should be doing. Oddly at the end of the day it will likely appraise where it should. The manipulations that take the appraiser to value are really in hindsight. They determine the value…and then they back into it on the form. In other words…an appraisal is never a determinant of “real” value. It can be lower if the instruction is for estate tax, higher if the instruction is to close on a real estate purchase, and has a great degree of flexibility depending on the reason why the appraiser was hired in the first place.

Market Value is not the price agreed upon between a buyer and a seller. Far from it. One buyer and one seller do not a market make. An agent and a seller are setting an asking price that will garner the highest possible price for the seller. Sometimes that means under pricing it to get multiple offers or encourage a bidding war. Sometimes it is over pricing it so as to later reduce it to a price that looks like a great deal because of the price reduction, but is still actually significantly over market value.

The best description of market value I have ever heard is “the price at which neither party is exceedingly happy”. Market Value is the price that the majority of buyers would pay…not that one individual for their own specific reasons will pay. Market Value is the price that a seller can readily get from most any buyer, not the price they are able to achieve by finding a fool to pay it.


One Response to “Assessed Value, Appraised Value, Market Value”

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