How Does a Tax Assessment and Appraisal Differ

By
Real Estate Agent with RE/MAX Executive Realty 91362

How Are Tax Values and Appraisal Values Different

If you are buying or selling a home, you're likely to encounter words that sound like they have the same meaning. Some of them do, and some of them don't. The perfect example is a tax assessment and real estate appraisal.

Both a tax assessment and a home appraisal try to find the value of a home. They use different means to reach their findings, which exist for different reasons.

When you are buying a home, an appraisal is required by the mortgage lender. Lenders want to know the home's current value to ensure they aren’t lending more to the buyer than the property is worth.

The property tax assessment finds the value of the home to calculate taxes. This valuation can be used for years until another assessment is conducted to calculate property taxes.

Sometimes tax assessments are calculated more frequently, but not always.

What is the Appraised Value?

A home appraiser assesses the value of a house to find the appraised value. They will visit the property to find the square footage, number of rooms, features, and to assess the home's condition. They will then use this information to compare the home to similar properties recently sold in the same area.

Comparable homes or comps are used to find a more accurate value. This considers market trends in the area and should ensure better valuation.

Mortgage lenders normally require the appraised value not to be lower than the purchase price agreed upon with the seller. Generally, a lender isn’t going to provide a loan for more than 97% of how much the home is worth.

A broker price opinion is also different from a real estate appraisal.

What are Tax Assessments?

Municipalities use a tax assessment to assess the taxes a homeowner will have to pay. The assessment isn’t designed to find the exact value of each home but rather to give an estimated fair and realistic value.

An assessed value will look at many of the same things an appraisal does. However, the assessor isn't going to do the same level of research and evaluation that an appraiser will do. This can lead to the assessed value being lower or higher than an appraisal valuation.

Using the mill rate, the assessed value will then be used to calculate the taxes due on the home. The mill rate sets the amount of tax owed. If the mill rate is 1, the property owner will pay $1 for every $1,000 their home is assessed for.

In some jurisdictions, this calculation might be slightly different, however. If an assessment ratio is used, taxes will only be based on a percentage of the assessed value. If the assessment ratio is 80%, only 80% of the property's value will be used to calculate taxation using the mill rate.

These tax assessments are often valid for 5 years but can be updated when significant changes occur.

Assessed values are different from appraised value whether you are in Massachusetts or some other state.

Can Appraisals and Assessments Be Disputed?

If the appraisal or the assessment is not in your favor and you believe it is incorrect, you can do some things. However, even if you dispute the valuation, it isn’t certain that you will get the desired result.

Disputing Appraisals

If the home doesn’t appraise for the amount you need to buy the home, you can try to dispute it. If the lender won’t increase the loan or you cannot make up the difference yourself, you can request a formal challenge.

You will need a skilled real estate agent in your corner to fight and win an appraisal dispute.

Though you usually need to show the appraiser made some errors in their finding for the lender to agree. The appraiser may have also made inappropriate value adjustments between properties used for comparison.

If the lender agrees, you might have to pay for another appraisal.

If a formal contract extension is not signed to work through the appraisal problem, the seller could choose to take an offer from another buyer.

Even if you could get a second appraisal, it might not value the home higher than the first anyway, meaning you lose out further.

Disputing Assessments

You can dispute the assessment if you think you are paying more property tax because your home is assessed unfairly. There will be an appeals process where you can try to get a reduction in the assessed value of your home.

The appeal might mean an assessor visits your home to provide a more accurate assessment. They might find that your home is on a smaller lot than neighboring properties, leading to a reduction in the assessment.

Though if you have made improvements to your home, the assessment could actually be increased.

There will be a specific time frame in which you'll be allowed to make your appeal. You will need to check with the city or town to ensure you don't miss the deadline.

Final Thoughts

A tax assessment and a real estate appraisal are both ways of finding the value of a home. They are used for different reasons, and an appraisal is more likely to represent a home's market value than an assessment.

Did you enjoy this advice on tax assessments compared to real estate appraisals? See other real estate articles on Active Rain for more timely tips and advice. Bill often writes about general real estate, mortgages, finance, moving, and home improvement.

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Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.

Comments (3)

Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Bil -  I love you explanation.  It really explains the difference that people find confusing.

Dec 01, 2022 06:44 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Bill I like your blog that you share with us today in the Rain.  Make it a great day! 

 

Dec 01, 2022 07:18 AM
Richard Weeks
Dallas, TX
REALTOR®, Broker
Great information, thanks for sharing.  I hope you have a great day.
Dec 02, 2022 03:47 AM