Appraisal vs Assessment?
When it comes to real estate these two terms are easily confused. Oftentimes they are even used interchangeably, but they refer to two very different things. And the difference is more than just semantics. When you are buying a home, or even selling, the appraisal is particularly important. When you are owning a home, the assessment is what mainly comes into play. What is the difference?
Appraisal — When you are in the process of purchasing a home, and you have applied for a mortgage loan, the bank will send out an appraiser to evaluate carefully the home, usually inside and out, to determine its value. The lender/bank wants to know this so they can determine things like how much they are willing to loan you, how much of a down payment they will require, etc. So the appraisal is the valuation of a home by a licensed professional appraiser for the purpose of determining the details of that loan that will (or won’t!) be made available for that particular property.
Assessment — The assessment also has to do with determining a home’s value. But it is done by a different person for a different purpose. When you own a home, a significant expense you will incur is the local taxes on your property. You will usually pay these taxes either directly to the city/county in installments, or you will pay them monthly as a part of the monthly payment you make on your home. (The monthly payment you make usually has four parts: principal, interest, taxes and insurance.) The city/county will send out an assessor who will determine the value of your home for the purpose of determining your taxes, which is to say that your taxes will be a percentage of your “assessed value.”
When it comes to buying, selling or owning a home, appraisals and assesments are always important, but they can become even more significant when the real estate market is down. For example, say you wrote an offer to purchase a home and then applied for a loan for that home. If the appraisal comes in at a lower figure than the price you offered, that will reduce the amount the bank would be willing to loan for the property. Which could complicate the buying of that property! So it’s actually an issue about which both buyers and sellers need to be aware.
When it comes to the assessment, say the market value of your home has decreased, for example, 20% over the past couple years. But your assessment has remained the same. This may cause you to wonder if you might be paying too much in taxes. This is why homeowners sometimes “appeal” their assessments. (Then again, when the day comes that these homeowners decide to sell their homes, they might then wish for that higher assessment!)
Appraisal vs assessment? Now you know the difference!