Property Assessment and Appraisal

In the world of real estate, a vital piece of information that is regularly sought out is the value of a property. This is needed for a number of different reasons, including:

• Deciding how to price a property you are selling.
• Deciding how much to offer for a property you are buying.
• Seeking a property loan.
• Refinancing a property loan.

Properties are valued via assessments and appraisals. There are significant differences between a property assessment and a property appraisal, and they have different purposes and uses.

What is a Property Assessment?

The purpose of property assessments is to determine the value of the property for taxation purposes only. Property owners must pay property taxes to their municipalities or counties. Property taxes are then used by the counties and municipalities to provide public services, such as police and fire departments, public works, and public schools. Different areas have different tax rates, and these percentages are applied to an assessed value of a property to calculate the tax payment owed. The assessed value is determined by a tax assessor or a group of tax assessors. Assessors use public property records from recent years and sometimes visit the properties.They mostly assess the outside of the property, and seldom enter the property. The assessed value may be quite different than the market value of the property (which is determined using a Property Appraisal) and will fluctuate less than the appraised value. Aside from local tax authorities, mortgage lenders reference a property’s assessed value when they calculate escrow payments for loans.

What is a Property Appraisal?

Property appraisals are mostly used by banks and other mortgage lenders. The purpose of appraising a property is primarily to provide assurance to the lender that the amount being lent corresponds accurately with the property’s true value. If the price is inflated and the property appraises below the requested property cost, the bank will most often deny the loan for being overpriced, and therefore a risker scenario. Should the borrower default on the loan payments and face foreclosure, the bank will likely have trouble selling the property for a price that allows it to recoup its investment.

Unlike property assessments, property appraisals are a more detailed and involved valuation process. Property appraisals are conducted by state-licensed property appraisers, who visit the home and take a thorough look at the inside and outside of the property. Appraisers look at comparable properties in the area, and recent property sales. They consider property home improvements and pay attention to property details, such as building materials. It costs around $300 - $400 to get a property appraised.

Appealing Property Assessments and Appraisals

Occasionally, property owners may not agree with their property appraised or assessed value. In these cases, they have an option to appeal the appraisal or assessment.

Appealing Assessments

If your assessment is inaccurate, you may opt to appeal it to avoid paying higher taxes. To appeal an assessment, you need to do some research about comparable properties in your area and their assessed values. If your estimate of what you think the value should be differs significantly from the assessed value, experts recommend that you first call your town assessor and explain your findings. This may be enough to motivate the assessor to re-review. Most often, city and town assessor offices have defined procedures for appealing that involve completing documentation and paying a nominal fee for a re-review. An appeal can potentially reduce your property’s assessed value, but the rate of tax stays the same for everyone in the municipality or county. By appealing, you risk that the re-assessment could come back higher and increase your property tax liability. While the chance of this happening is low, it can occur. Finally, if you are selling your home, and your assessment is lowered, it could have an adverse effect on the sale of your property. For these reasons, appealing is only recommended if the concerns about the original assessment are considerable.

Appealing Appraisals

If an appraisal is too low, a real estate loan can fall through, and the ability to price a property accurately for sale may become problematic. With proper grounds, you can appeal an appraisal. These include:

• The appraiserusing outdated comparable records.
• The appraisal not considering improvements made to the property.
• An appraisal is performed by an appraiser without sufficient knowledge of the area.
• An error in the appraisal, such as an error in square footage.

If your appraisal meets these criteria, you would contact your lender to find out about appeal procedures. There is usually a board that can re-assess, but some appeals are denied. If this happens, you can back out of the loan and start again with a different lender.

It is always a good idea to be well prepared for all assessments and appraisals. You can prepare by having access to records of repairs, and other property records, so that you can answer any questions that come up accurately. It is also a good idea for appraisals to make sure the property is clean and uncluttered.

Assessments and appraisals are important steps in real estate property ownership. Through research of your town or municipality offices and knowledge of your property, you can ensure that your property’s valuations and accurate and make sense to you.