Hey everybody! It’s Austin Solomon and welcome to this week’s episode of The Real. Today we’re going to break down the differing values for a property. There’s an appraised value, there’s the market value, there’s the assessed value and there’s the fair market value.
There are all these types of different values and they kind of get mixed up sometimes. I know a lot of time we’re interacting with homeowners, there is a little bit of confusion around each one, which is fine, so I’m here to do a quick episode just to explain what each one means.
The first one is an appraisal. This is the most extensive process of determining the value of the property. This is where you have a licensed or certified appraiser that comes out to the property and they’re going to do a deep dive. They are going to take measurements and they’re going to know the exact square footage. They document all of the upgrades and all the features of the property. Then what they do is compare the home to 3-6 properties, sometimes more, that have sold that are similar to that. Then they prepare this appraisal report that basically says the appraised value of your house is this. That’s the most extensive type of property evaluation and the appraisal process can cost anywhere between $450 to $650 and up depending on the type of property.
A lot of times when you’re buying a house and using a lender, obviously the bank wants to make sure the house is worth at least what you’re paying for it and that’s why an appraisal is done. However, if you’re a homeowner and you’re looking to sell your house, you may have an appraisal done, but more often, you’d have an agent, like myself, prepare what we call a competitive market analysis.
So, the market value may be slightly different coming from a market analysis. As an agent, we’re doing something similar to what the appraiser did. It’s not as extensive as we’re looking at comparable properties in the area with similar features, similar size, etc. Sometimes there is a bit of a difference between an appraisal and a market value. A lot of times a house may be appraised at X amount but it might not sell for that amount.
So an appraisal for the purpose of sale can sometimes be different. What I mean by that is a property might be worth a certain amount on paper but the market might be slightly different. What a ready, willing and able buyer might be willing to pay for that might be different than what the appraised value is.
A competitive market analysis, an agent would prepare that and again it’s not quite as extensive. It answers where’s the market for your house and what would a ready, willing and able buyer willing to pay for it.
Then you go into values that the city would assign to your property, this is just for tax purposes, the assessed value of the property. This is what the city assessor or the township does. They assign a value to your property and come up with an assessed value and they come up with the fair market value as well too.
Most of the time, how they come up with the assessed value is they take a fair market value and then multiply that by the assessment ratio.
Let’s say the fair market value of your house is $100,000 and the assessment ratio is 90% then you’re being assessed on 90% of what they see as the fair market value. Sometimes the assessed value is higher than the fair market value, sometimes the assessed value is lower than the fair market value. A lot of times buyers will look at a $200,000 house and ask why the assessed value is only at $140,000, what are the sellers thinking? It’s way over priced.
Well, the problem with assessed value and fair market value is, it comes from the assessor or the municipality, and that value may not be up to date. That value may have been updated 5, 10, 15 years ago and the homeowner might have done some improvements since that property was assessed. It’s a good basis to go off of, it sometimes helps inform us prior to evaluating a property, but it’s not going to be even as close to extensive as an appraisal or an agent prepared market analysis because it’s not up to date. It just says what the assessor says the property was worth, whenever they came out. Again, a lot of times those numbers don’t depict the true value of the property.
For a homeowner, they want to keep that assessed value low so their property taxes are low, so they’re not going to complain about it either.
To recap, we have the appraisal, the competitive market analysis, the fair market value and the assessed value as well. So again, the appraisal that’s determined by an appraiser. The competitive market analysis, that’s done by an agent. Those are both more current valuations of the property’s worth. Then you have what comes from the municipality which are the fair market value and the assessed value. Again, for determining the property value, those aren’t as good of methods. It’s a basis, but it’s not always up to date.
Thanks again for tuning into this week’s episode of The Real. Now that these are clarified for you hopefully you can use them out in the marketplace.
So, thanks again for tuning in!
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Austin Solomon | The Solomon Group – Coldwell Banker Action – (715) 212-4693