Along with the fair market value of a home, there are two other methods of home valuation: assessed value (also referred to as tax value) and appraised value. Assessed value is used for property taxation almost exclusively. Appraised value has a few more purposes and one of the most common is when buying or selling a home. The appraisal presumably should be at or very near to the eventual selling price.
Many buyers and home owners look at the tax value recorded at the municipality and assume that number represents a fair market value, which it usually does not. One of the purposes of property taxes is to provide monetary values to meet the town’s annual budget. Town assessors may not be licensed appraisers, may not consider recent property improvements or current condition and may not compare the subject property to similar recently sold properties in the area.
An appraisal is ordered for the specific purpose of determining the fair (or current) market value of a property. This number usually is very close to the eventual sales price. Appraisers must be licensed and rely on current market data, recent sales (within around 6 months) on properties that are similar in size, style, features and location to the subject property. The appraisal essentially protects the lender and the buyer from artificially high home prices.
When discussing assessed value and appraised value, keep in mind a property’s worth is defined differently under each value. It can be common that a home’s assessed value will not keep up with the local real estate market’s rises and falls; and this is usually because they are only conducted every one to three years. Therefore, when buying or selling a property, the appraised value (or market value) will be most beneficial to the homeowner.