Real Estate Terminology
Anyone who has ever participated in the purchase or sale of real estate has heard terms like “assessed value,” “market value” and “appraised value.” To their surprise, none of these numbers corresponded with the others. The reason for these discrepancies springs from how each of these values is determined and the reasons for which they are used. Understanding these terms can make anyone more knowledgeable about the intricacies of real estate transactions and property taxes.
The assessed value is typically set by an assessor who works for the county in which the property is located. Assessors evaluate a property based on numerous factors, such as how much similar properties have recently sold for and the value of improvements. They also consider how much income the owner is making from the property. Using these factors, the assessor determines the “assessed value.” This number is then multiplied by a number known as the “assessment rate.” The rate is set by the county, and it’s applied equally to all property.
For instance, the assessed value of a property may be multiplied by an assessment rate of somewhere between 80 and 90 percent. When an assessor finds that a piece of property has a value of $500,000 and is subject to an assessment rate of 85 percent, then the assessed value will be $425,000. The resultant $425,000 is then used by the local assessment agency to calculate how much is owed in property taxes. In general, properties that have a higher assessed value will be required to pay more in property taxes.
The assessed value of a property is used almost exclusively for the purposes of calculating property taxes. However, it may be mentioned when the property goes up for sale, particularly if the assessed value is quite different from the asking price.
This number is a moving target that can change by the week or even by the day. That’s because it’s essentially the number that a buyer and seller can agree on to ensure a sale. Typically, the market value of a property is established by a real estate agent who is trained to discern how much a property is likely to sell for.
Real estate agents look at several factors to determine market value. This can include what the property is used for and its location. Structures that are used for commercial or industrial purposes may be weighed by factors like their condition, curb appeal and the fitness of the facilities for a particular use. Real estate agents similarly examine what comparable properties have recently sold for in the area. Supply and demand also affect market value. In essence, the real estate agent looks at the number of likely buyers in the area and how many other properties are suitable for the purpose that the buyer requires.
The market value forms the basis of the asking price, and it also may inform any offers made. In fact, a buyer may commission their real estate agent to come up with their own market value to help them arrive at an offer.
Usually, the appraised value fluctuates far less often than the market value. That’s because the assessed value is typically determined by a professional appraiser. Appraisers frequently are hired by banks and mortgage companies to conduct a thorough review of the property in question. By looking at factors like the features and functionality of the property as well as recent sales of similar properties, this professional establishes the appraised value.
Appraisers are typically licensed or certified by a state or other agency, which means that they have specialized knowledge and training that prepares them for their work. The appraised value that they determine is used as a guideline. In most cases, a property will not be sold at a price that is greater than its appraised value. Appraisal reports also are used for insurance purposes and for figuring net worth and tax losses.
Contact the real estate experts at Waypointe Group to learn more about the property valuation process. With professionals experienced at determining market values and comparing them to assessed and appraised values, Waypointe Group can ensure that you always settle for the right price.