Home Tax Assessed Value Vs. Appraised Value

Your home's tax assessed value and appraised value are often different.

house image by Ian Holland from Fotolia.com

For homeowners, it's important to understand what the value of your home means and how it is determined. Most homes have an assessed value and an appraised value. Depending on where the property is located and other factors, these values might be similar or different. Tax assessed values are used only by the property tax authority of your county or municipality in order to bill you properly. Your home's appraised value represents the fair market value of the property.

Tax Assessment vs. Appraisal: Very Different Valuations

Counties, municipalities and cities impose property taxes on homeowners. The funds from the collected taxes are used for various purposes such as schools and public safety. Tax jurisdictions determine the tax rates and the methods used to assess the properties. Commonly the tax assessor – or group of assessors – review property data from previous years or visit the properties in person to determine the assessed value. Generally, the assessor does not enter the home for this process. A home tax assessment is simply used to determine the value of the property for taxation purposes and may or may not reflect what you could actually get for the property if you sold it.

A property appraisal, on the other hand, is a more involved process than a property tax assessment. State licensed appraisers complete the appraisal. Generally, appraisals are conducted on behalf of a mortgage lender. The appraiser visits the property and tours the inside of the home. Based on a review that looks at building materials, improvements and overall size – in addition to recent sales of comparable homes in the same area – the appraiser makes an estimate on the fair market value of the property.

Function of Appraisals vs. Assessments

The tax assessed value is only used to determine property taxes. Your mortgage company may use the assessment data in order to estimate your escrow. Otherwise, the tax assessed value is only used by the taxing authority. The higher the assessed value, the higher your property tax bill.

The appraised value of a home is most commonly needed when the property is being purchased with a new mortgage loan or the existing loan is refinanced. The mortgage company wants to make sure they aren't lending more than the property is worth. Appraisals are used to determine the fair market value -- what someone would actually pay for the house if listed on the market. You may also use an appraisal to prove the value of the home for other reasons, such as for a property tax appeal.

Use Appraisals to Lower Property Taxes

The relationship between the tax assessed value and the appraised value will vary based on what part of the country you live in. Some places, like California, set rate limits on tax assessments. The assessed value of a home is only allowed to increase by two percent each year. Over time, the appraised value of the property could far exceed the assessed value. On the other hand, some tax authorities re-assess only every few years. This might cause a drastic increase in tax bills. Most municipalities and/or counties have an appeals process through which you can try to prove that your house is worth less than the taxing authority believes it is and therefore, the taxes should be lower.

The appraised value might also determine if a loan is approved or not. If the appraisal comes in low, the loan may not be funded to the full extent you seek. If the property you are trying to sell or buy was appraised for lower than the asking price, however, you might be able to work with the mortgage lender to have a second appraisal completed.