As a homebuyer or homeowner, you have likely heard of different terms that refer to the value of your home, including market value and appraised value. Both are important to understand, but for different reasons.
There’s also a third term that we’ll explain called assessed value. This term is used for tax purposes, but it is also another measure of your home’s value.
Learn more about market value and appraised value, and why these numbers often differ.
Market value is what someone would be willing to pay for your home, or the price when it goes on the open market.
Factors that can influence market value include:
- Current supply and demand
- Economic climate
- Property features or amenities
- Curb appeal
- Sale price of similar properties
The market value isn’t the appraised value of the home, and it’s not the value used to calculate property taxes. It is simply the value that the buyer and seller agree to based on current market conditions.
Appraised value determines the value of the home based on a detailed analysis from a third-party appraiser. The mortgage lender will require the appraisal to minimize their risk, as they won’t lend more than the property is worth.
An appraisal is usually done as part of the home buying process, or if someone wants to refinance their mortgage. The seller may also ask for an appraisal to determine the listing price.
When performing an appraisal, the appraiser will review:
- The condition of the home
- Interior and exterior
- Home improvements or renovations
- Signs of damage or infestation
- Comparable listings or similar properties
Why Do Appraised Value and Market Value Differ?
Appraised value and market value are different because of who determines the value in each case. A professional appraiser’s analysis is much more objective and detailed, while market value is subjective. For this reason, it’s expected that appraised value and market value won’t be the same.
If an appraisal comes in lower than the asking price, it could mean the property was overpriced. Market value may be higher than appraised value if there were multiple offers.
When the appraised value is lower than market value, the buyer may be able to negotiate. Most real estate agents will advise against paying more than the appraised value.
If the appraised value is higher than the buyer’s offer, it means the home is worth more than what the buyer will pay.
There is actually a third term that homeowners should be familiar with called assessed value. This is the monetary amount that is used to calculate how much a homeowner will pay in property taxes. Such assessments are usually done annually.
Assessed value is calculated using the same methods that appraisers use to determine appraised value. However, home appraisals are often more detailed than tax appraisals since they are used for mortgage underwriting.
An assessor that works for the taxing entity will provide this estimation. They use these factors to determine the home’s assessed value:
- Condition of the property
- Market conditions
- Home features
Like appraised value, assessed value is usually not equal to the fair market value.
Protesting Assessed Value
Did you know as a homeowner that you can protest your home’s assessed value? Appraisal districts have hundreds or thousands of properties to review each year, often making this system imperfect. Even if your home’s assessed value hasn’t changed, you can still file a property tax protest.
When you file this protest, it means you disagree with your home’s assessed value. Should you win your appeal to reduce your assessed value, you can expect to pay less in property taxes.
To learn more about how you can save on your property taxes in DFW, call NTPTS at 214-954-4103.