Definition
Assessed value is the dollar amount assigned to a property by a local tax assessor for the purpose of calculating property taxes. In contrast, appraised value is the market value determined by a licensed appraiser based on the property’s condition, location, and comparable sales.
Explanation
The assessed value is usually a percentage of the property’s market value and is used to determine annual property taxes. It is often lower than the appraised value and is adjusted periodically by local governments.
✅ Assessed Value:
- Calculated by local tax authorities.
- Used to determine property taxes.
- Often lower than market value.
✅ Appraised Value:
- Determined by a licensed appraiser during a home purchase, sale, or refinance.
- Reflects the current market value based on comparable sales and property condition.
- Used by lenders to ensure that the loan amount does not exceed the property’s worth.
Understanding the difference is crucial for homeowners to avoid confusion when estimating property taxes versus the market value during a sale or refinance.
Pros and Cons of Assessed vs. Appraised Value
✅ Advantages:
- Helps owners estimate property taxes accurately.
- Appraised value prevents over-borrowing and protects lenders.
❌ Disadvantages:
- Assessed values can lag behind the actual market, leading to tax discrepancies.
- Appraisal costs can be significant for buyers and sellers.
Example
A home with an appraised value of $500,000 might have an assessed value of $350,000 for tax purposes. Based on a tax rate of 1.5%, the annual property tax would be $5,250, not $7,500 as if it were based on the appraised value.