Appraisals, Assessments, and Fair Market Value

The words appraisals, assessments, and fair market value all relate to one of the most common questions in San Antonio real estate – “what is my home worth?“

These three terms often get jumbled up and misused, which can lead to a lot of confusion over what the value of a home is. It becomes even trickier as the word “appraisal” gets tossed around a lot to mean a variety of different things. This careless misuse of these words can really complicate the issue of pricing a home for sale, so let’s take a look at the three terms and how they relate to real estate and the value of your home.

Appraisals

We’ve discussed appraisals recently, including a post about appraisals and why you need one and some of the positive and negative sides to appraisals. Appraisals are part of the mortgage process (and you should get one for yourself, even if you’re a cash buyer) – the lender uses the appraisal report to help underwrite the loan. The lender wants to know that an appraised value is equal to or more than the price you have agreed to pay for the home.

Appraisals are performed by licensed appraisers who receive a lot of training. Since the housing market crash, appraisers have become rather tight with their valuations, which can be quite daunting for both home buyers and sellers (lenders will not loan more than the amount of the appraisal).

Assessments (Tax Assessed Value)

I often hear tax assessed values called appraisals. It’s kind of a tricky set of words. The office that handles them is called the Appraisal District, but for the purpose of clear definition, these should not be confused with appraisals. Tax assessed values are used by your local county to assess the amount of tax you owe on your property.

These assessments are not a good indication of value – although they can be dead on at times. With Texas being a non-disclosure state (final sold price of a home is not disclosed publicly), these tax assessed values can vary widely. There are cases where people protested their taxes and cases where the neighbor didn’t, creating disparity in taxable values on properties that may be very similar. Basing your listing price or (if you’re a buyer) your offer price on these numbers is not a good idea. Tax assessed values are good to periodically check, to be sure your property taxes are not increasing too much (if they are, you can protest your taxes here in Texas).

Fair Market Value

Fair market value is a valuation of your home based on current market trends and the actual physical value of your home. While appraisals are rather scientific in nature, fair market value is part science and part art. Your real estate agent takes into account all the information and knowledge they have on your neighborhood and your home and performs a CMA (comparable market analysis) to determine fair market value. Based on current sales trends and the details of your home, your agent will give you a price to list your home at (based on the fair market value).

As we’ve seen in recent years, the price of a home can change and move both up and down. A home purchased today may sell for more, less, or the same in the future – this future price is its fair market value at that moment in time. Even when a fair market value is set for your home, you may find that you still need to adjust the price of your home in order for it to sell.

You may also want to read Dave Taylor’s article on cost versus market price in homes sale.

image courtesy of Studio Mohawk