Demystifying Appraisals and Assessments: What You Need to Know for Home Buying/Selling

When buying or selling a home, it's important to understand the difference between an appraisal and an assessment. This is one question I get asked about often! An appraisal involves a professional evaluation of a property's market value. Typically ordered by lenders during the mortgage approval process, it provides an estimate of how much the property is worth. Appraisers consider factors such as location, size, condition, and recent sale prices of similar properties to determine the market value.

On the other hand, assessments focus on valuing a property for tax purposes. Conducted by government officials or tax assessors, these valuations consider elements like location, size, and improvements. Assessments play a crucial role in calculating property taxes, which are usually paid to the local government. The assessed value is generally lower than the appraised value, resulting in lower property tax payments compared to mortgage payments.

Implications for Buyers and Sellers

The appraised value is used by lenders to determine how much money they are willing to lend to a borrower. If the appraised value falls below the purchase price, the borrower might need a larger down payment or private mortgage insurance (PMI) to compensate.

The assessed value, on the other hand, is used to calculate property taxes. Buyers can anticipate lower property tax payments than their mortgage payments due to the typically lower assessed value. 

Crafting a Winning Appraisal Strategy

To make a compelling offer in a competitive real estate market, you need to develop a solid appraisal strategy along with your trusted real estate professional and lender. Here are some tips:

• Thorough Research: Before making an offer, research the local real estate market and gather information on recently sold comparable homes. This knowledge will provide a realistic idea of the home's fair market value
• Expert Guidance: Work with a seasoned real estate agent familiar with the local market. Their expertise can help you research comparable homes and formulate a competitive offer.
• Waiving the Appraisal Contingency: In a competitive market, consider waiving the appraisal contingency to make your offer more attractive to sellers. By doing so, you commit to purchasing the home regardless of the appraised value. This demonstrates your seriousness and dedication to the purchase. However, be aware of the associated risks, such as potentially needing a larger down payment or PMI if the appraised value is lower than the purchase price.
• Appraisal Gap: Alternatively, you can make an offer that accounts for a potential appraisal gap without leaving it entirely open-ended. This approach provides clarity on the worst-case scenario upfront. Here is where a knowledgeable lender comes in to play, as they can guide you through the available options if the appraisal comes in lower than expected.

By mastering the dynamics of appraisals and assessments, you can navigate the home buying or selling process with confidence, ensuring informed decisions and successful transactions. We are always happy to answer any questions you might have!