Real Estate–Assessment Vs. Appraisal


If you own a home or are planning to buy a home, you’ve likely heard the terms real estate appraisal and real estate assessment.  Those new to the housing market may assume that they are the same thing, but they are actually different because they are calculated in two different ways and are used for two different purposes.  (Appraisals are generally used for mortgage lending and refinancing purposes while assessments are generally used for property tax purposes.)  In general, a real estate appraisal is considered more accurate.

Here’s how the two differ:

Real Estate Appraisal

Often, the real estate appraiser will visit your home and examine it inside and outside to determine a value.  An appraisal is generally done for lending purposes, either for a new home loan or for a refinance.  The value of your home when it’s appraised is largely dependent on the current market activity, so the appraised value could change dramatically in a few years depending on whether the market is doing well or not.  For these reasons, an appraisal is generally considered to be a more accurate reflection of your home’s worth than an assessment.

Real Estate Assessment

Every year, your home is assessed, often at the beginning of the year.  Assessments are needed so the local government can determine your real estate tax based on your home’s value.  Generally, assessments are not done in person unless the house is newly built or has undergone significant renovations.

Otherwise, property assessors use a variety of measures such as your home’s original purchase price, size, improvements and information about what other houses have sold for in the area to determine your home’s assessed value.  The property assessor must guess what the housing market is going to do during the year when calculating your home’s assessment.  For this reason and the fact that it’s done at the beginning of the year, property assessments are considered less accurate than real estate appraisals.

If homeowners disagree with the assessment, they are free to contest it.  However, most people only opt to do this when they think their house has been assessed too high rather than too low.  If you think your house was assessed too high, it’s important to appeal it because the assessed value in part determines the amount of real estate tax you will pay.

Knowing how a real estate appraisal is conducted is important if you are planning on buying a new home or refinancing your current home.  Keep in mind if you are selling your home that the buyer generally pays for the appraisal, not the seller.

Likewise, understanding how real estate assessments are conducted is also important.  If you make any major renovations to your home, your real estate assessment will likely increase, and you will likely pay more in taxes.  Also, as the homeowner, you have the right to appeal your real estate assessment if you feel it is too high.  While not all of these cases are won, many are, and it’s worthwhile to appeal to lower your potential tax burden.