Sunday, March 16, 2014

Assessment vs. Appraisal vs. Comparative market Analysis - by Lisa DiBiase

Many people confuse the difference between assessments, appraisals and comparative market analysis's.

Towns and cities charge a tax on residential homes. An assessment is the value placed on a property by the town or city for the purpose of determining the property tax due. The calculation of the tax is derived from a percentage multiplied by an assessed value of a piece of property. An entire town will be assessed during a 4 to12 month period with values determined by a team of qualified assistants after viewing properties and interviewing owners. 

Assessments are used strictly for levying taxes and do not actually reflect the real estate market condition. Every municipality calculates assessed value using different formulas. They usually include land area, interior living area, and exterior amenities such as garages. 

The combined assessed value of all the town properties is then used to calculate what the tax rate will be. Each year the town may re-evaluate the tax rate to obtain the monies needed to run the town based on that combined assessed value. So tax rates may change from year to year but assessments usually do not. Only when assessed values become so outdated as to cause tremendous inequities between properties will a town reassess.

An appraisal is an estimation of a home’s market value by a licensed professional using specialized methodologies. Appraisals are done most commonly when a property is to be purchased using a loan or refinanced, but may also be requested for a variety of other reasons. An appraisal report is done to determine value. The appraiser will use currently listed and sold properties of similar properties making adjustments for differences between the subject property and the comparables. They will usually combine this "market approach" with a second method such as "cost approach" (determining the cost to rebuild) and/or "income approach" (used on properties that produce income) to determine Value. Lenders obtain the services of appraisers to determine the value of a home as opposed to the sale price. Appraisers always review at least three other houses that recently sold within the same city. Since a town or city’s real estate market can change constantly within a time frame, comparing relevant sales is vital to a valid appraisal. There is a big difference between obtaining an appraisal for a purchase versus refinance. One of the biggest differences is a purchase has loan-to-value percentages that factor in the loan approval process which means the appraisal amount typically has to match the purchase price. Where as in refinance appraisals, the borrower has typically paid the loan over for a period of time and the principle balance has been paid down where there is more equity available which helps the loan to value ratios.

Comparative Market Analysis (CMA)
A CMA is an estimate of your property's value done by your real estate broker to establish a listing or offer price when you decide that you want to sell or buy a home or property. This service is usually offered free of charge and without obligation. A CMA should only be used as a reference for deciding at what price you should list or buy your home for. Much like an appraisal, your broker will create a CMA by utilizing recent sales data and using their knowledge of the local market. This helps the broker determine what price they think a buyer would be willing to pay for the subject property. They will compare your property with similar properties that are currently listed and recently sold. A comparable property is one that is of the same type (single-family, multi-family, commercial, etc.), is in similar condition inside and out, and has the same or close to the same number of units and land/living area size. They also look at the length of time the property has been on the market to help determine value. 

Assessed value and appraised value will usually not be exactly the same on a property as the appraised value takes a snapshot in time and will be impacted by market activity. The difference between a comparative market analysis (CMA) and a real estate appraisal report is that one is done by your real estate broker and one is done by a licensed real estate appraiser.

As I have said before, please call a local realtor for all your real estate needs no matter how big or small. We are trained professionals here to make your life easier. It's best to surround yourself with the right team of professionals that can continuously give you the right advice for all your circumstances.

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