House assessments and appraisals are not the same species. Your county's tax assessor sets a value on your house as a step in setting your property taxes. The appraisal tells buyers how big a mortgage your house is worth. The tax assessor's judgment doesn't affect your home price or your appraiser's evaluation.
Reason for Appraisals
Suppose your asking price is $200,000 but the appraisal comes in at $160,000. If the buyer loves the house, he's free to spend more than the market value. The mortgage lender, however, won't underwrite a mortgage if the house isn't worth enough to be collateral for the loan. That's the reason for appraisals: to tell the lender what the house is worth in the current market. A lowball appraisal can sink the sale unless you renegotiate a lower price.
Appraisers determine fair market value by comparing your house to recent sales of similar properties. Assessments, by contrast, may not reflect recent values at all. In California, for example, once you buy a house your assessment can't rise more than 2 percent a year. Even if the market's gone up 10 percent this year, your assessed value is still capped at 2 percent. When you sell, the assessed value jumps up for the new buyers, based on the sales price. California lenders know the assessment has nothing to do with the home's current market value.
Highest and Best
Another difference between assessment and appraisals is that assessors have to consider the highest and best use of the property. On a vacant lot, for instance, assessors value the land based on the most profitable use of the property -- commercial, multi-family, industrial, residential and so on. If the buyer wants to put the property to a different use, the assessed value won't reflect the worth or value of what he intends to build.
Pricing Your House
Because it so often differs from market value, using an assessment value to set your asking price is generally considered a mistake. Instead, you want a price that's in line with market value: some sellers get an estimate of market value and add 1 to 3 percent to determine an asking price, so they have room to negotiate. This may require paying for an appraisal before you put the house on the market, or working with a real estate agent who knows local real estate values well.
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