Assessed Value, Appraised Value & Comparable Market Analysis

In the process of selling a home, the seller often begins with their assessed value as a basis point for determining the market value of their home.

For example, the local tax board has determined the land value of the home to be $20,000 and the improvements to be valued at $80,000 for the total value of $100,000.  They then either give you an estimated market value or they tell the the assessment is based on 88% of market value.  The only math step required is to divide $100,000 by 88% to determine that the local tax board thinks the market value of the home is worth $113,636.  This is the assessed market value.

There are several reasons why this assessed value may be wrong:

1. The local tax board usually only does a area wide assessment every five years.  That means that home values are only based on the general impressions of increases for an area, not on your particular neighborhood, street, or home.
2. If a home has been issued a building permit which increases value or has been sold within the five year period, the assessed value of that home immediately changes to reflect the improvement or the new sales price.  In addition, it will have the areawide increase or decrease.  If the home next door has no improvements or has not been sold, it remains at the old rate plus areawide value changes.  Only at the five year period will all homes be equally assessed again.
3. Assessors may not react quickly enough to rapid changes in market conditions.  While increases in home values have nearly stalled(or in some places decreased) over the last couple years, assessors may still be working off old formulas for determining increases that just aren't there in market value.

The other figure sometimes used by sellers is an appraised value.  An appraised value is when a licensed appraiser is hired to give a professional opinion about the value of a home.  Most do a great job, but the reality is that these figures can be skewed as well. Here's why:

1. The appraisal is based on who the appraisers client is; a bank, an insurance company; the owner.  If for a bank, the clients concern is for an appraisal that gives a conservative value to the home so that they feel comfortable issuing a loan on that home.  If an insurance company, they might want a low value so that their liabilities are as minimal as possible.  If the owner, their concern is getting the top possible dollar for their home.
2. An appraiser who is not sensitive to the needs of his/her clients will have a hard time keeping clients.  While they try to work with absolute integrity, a seller must be careful in putting too much stock in an appraisal because it is possible that the number was just what the client wanted to hear.

While each of these can provide guidelines, the best way to truly determine value is to ask a real estate agent to provide you with a comparable market analysis.  This analysis takes actual homes in your neighborhood that are active or recently closed on the market and compares your home to them.  Then the value of your home is determined on present tense actual realities.

Be careful however, because there are Realtors out there who will just tell you what you want to hear.