Tax assessments and real estate appraisals both set a value on your property, but there's no law that says they have to match. They're set up for different purposes, so it's quite common for the values to differ sharply. Assessments set your property tax, whereas appraisals determine the value of your house when you apply for a mortgage or a refi.
Even if your assessment comes pretty close to the appraised value, that may not last. Local governments make assessments once a year at most, and in some states it's every two or three years. That's plenty of time for the real estate market to change. If you go in for an appraisal late this year -- for a refi, say -- the value must be as current as the appraiser can make it. A recent appraisal reflects market value more than last year's assessment can.
In some states the difference between the two is even starker. Under California state law, for instance, a resident owner's assessed value can go down if values drop, but it can't rise more than 2 percent a year. If you buy her house, you get a new assessment at current market values, so it may be closer to the appraisal value. After you close, though, your appraisals may rise while you own the house, but your assessed value barely budges.
Sometimes neither your appraisal nor your assessed value match up with the market value. If someone offers you, say, $250,000 for a house, that's based on what he thinks it's worth. If that's more than the average buyer would pay, the appraised value -- which is the basis of the mortgage -- may be only $225,000 or $200,000. The assessed value may have no relationship to either figure. Some real-estate agents interviewed on the "Martha's Vineyard Times" website, however, note that assessments can still make a good starting point for negotiations.
Some bodies, such as school boards, levy property tax but rely on cities or counties to assess and collect it. Assessments in one city may be recent and close to appraised value, while another city in the same school district has out-of-date assessments that don't reflect the market. Some states apply a mathematical formula, the equalization rate, that calculates total market value for a given city's real estate from the total assessed values. If equalization shows Town A's and Town B's real estate are worth the same amount, they have to pay the school district the same amount of tax, even if the assessed values are different. This may require one town set a much higher tax rate.
- New York Times: YOUR HOME; Market vs. Appraisal: What's the Real Value?
- Martha's Vineyard Times: Assessed and Appraised Value vs. Market Value
- Great Midwest Bank:Appraised Value vs. Assessed Value – What’s the Difference?
- California State Board of Equalization: General Information -- FAQs
- Monroe County Michigan: Monroe County Equalization Department
- New York State Department of Taxation and Finance: Equalization Rates
A Durham, NC resident, Fraser has written about law, starting a business, balancing your budget and fighting evictions, among other legal and financial topics.