Although the words "assessment" and "appraisal" mean the same thing, when it comes to property valuation, they are two entirely different processes.
What's an appraisal?
A home appraisal is an appraiser's approximation of your home's market value. If you are looking to sell or buy a new home, this is an important step to take to make sure the asking price is a fair one. There are several different methods of appraisal:
- The "sales comparison" approach takes into account nearby property values and recent sales of comparable homes.
- The "income" approach is for income-producing properties, and takes into account the amount of money invested, the income generated and the expected return based on the current market.
- Another common appraisal approach is the "cost" approach, which is simply the cost it would take to build the home today.
Appraisers are typically provided by the property buyer's lender when taking out a mortgage as part of the closing fees. This is the lender's way of ensuring the property is not overvalued, and the loan will be adequately secured.
How is this different from an assessment?
The local government assesses the value of a property in order to determine how much to tax its owner. The government's assessment of value can sometimes be drastically different from the market value. Property taxes, assessment formulas and valuation practices are variable depending on who has jurisdiction over the property. Therefore, it is advised to avoid looking at assessments to determine if the asking price of a home is a fair one. If looking at the town clerk's records find that a property is valued at $100,000, this does not mean it should be put on the market at this price, because it fails to take into account many factors that can raise or lower the value to a buyer. The economy may have drastically changed since the county or municipality last assessed the property, for example. Or, the current condition of the property may increase or decrease its demand in the marketplace.