There is a LOT of confusion trying to understand real estate vocabulary. But since so many people are concerned about the true value of a home, whether you’re the buyer or the seller, I thought I would try to cut through three terms. And if I get you TOO confused trying to “unconfuse” you, just drop down to MARKET VALUE. That’s the most important one. Appraised Value An appraisal is a valuation report completed by (you guessed it) a licensed APPRAISER to determine property value at a given point usually for the purpose of obtaining a mortgage. It is an underwriting tool used by banks and other lenders to determine if the property is appropriate collateral for the loan they would be extending to a buyer for an original mortgage, or to the homeowner for the purpose of refinancing or obtaining a line of credit. The appraiser uses recently sold comparable properties in the evaluation. (You may have heard of “comps”; that’s what we’re talking about.) Square footage, the age of the roof, the type and age of heating and cooling equipment–that kind of stuff. The appraiser combines these numbers with other valuation methods to come up with the appraised value Assessed Value An assessed value is the value of the property set by the tax assessor for the purpose of determining the tax basis of the property. The “assessment” is a percentage of the assessed value that the homeowner pays to the municipality as tax for capital improvements to roads, water and fire services, schools, and other essential services. An assessment determines values for an entire neighborhood, city, or county during the evaluation period. The actual tax rate may change from year to year, but the assessment only changes when the values become outdated due to larger changes in the municipality’s structure, such as an increase in fire or 911 services. Market Value In real estate, market value is not the same as assessed or appraised value. Popcorn at a movie theater might sell for $7 a bag, while that same amount of popcorn at a convenience store might be $2 and a similar bag at the grocery store just 50 cents. We are willing to pay each of these prices based on the location and convenience to ourselves at that place and time. In the same way, the market value of a home is the price for which a specific property will sell under a specific set of circumstances in its current condition at a specific time—typically 1 to 3 months. There is no actual way to determine exact market value. The seller’s circumstances may change, the property circumstances may change (tornado, hurricane, imminent domain), the buyer circumstances may change (new business relocates to area), the community circumstances may change (commercial or industrial building built nearby) or any of a myriad of factors. So I’d say that true market value is the price a house will sell for in 30 to 90 days. You got all that? Here’s the point: Whether you’re listing or buying, you’re interested in the market value–a realistic value of what that house should sell for rather quickly. Remember, in our market lots of houses only stay on the market for a week or less! Sellers–don’t get emotionally attached. Buyers–you need to act quickly. And listen to ME, your Realtor! I can answer your questions. Really!
March 26, 2014