Appraisal vs. Assessment: What’s the Difference?

What Is an Appraisal?

A home appraisal is a systematic analysis of a house and the property it occupies to determine a suitable sale price under current market conditions. Mortgage lenders typically require appraisals as a condition of issuing loans, to make sure they don't lend more than a property is worth. Most mortgage lenders will not issue a loan for more than 97% of a home's appraised value.

An appraiser typically walks through the home and property to determine its chief characteristics: square footage, number and type of rooms and amenities, and so on. An appraiser also typically will take into account the home's general state of repair, noting obvious defects or deficiencies that could lower the home's value.

After visiting the property, an appraiser typically uses the attributes they've observed to identify comparable properties (or "comps") sold recently in the area, with a goal of ensuring the sale price of the appraised house lines up with recent market trends. In cases where a home differs in major ways from other properties in the area, or in slow markets with few recent sales, appraisers may calculate home value by determining the cost to rebuild the home using current labor and materials costs.

The appraiser issues their findings in a report that states the home's appraised value and lists relevant observations about the property and comps or other calculations used to arrive at that figure.

What Is an Assessment?

Cities, towns and other taxing jurisdictions conduct periodic property assessments for purposes of calculating property taxes.

Rather than identifying an exact sale price for every property in a municipality, the goal of assessment is to assign an estimated value to each property that's realistic and fair relative to the values assigned to other properties in the jurisdiction. Home assessments take account of some attributes appraisals do (square footage and number of rooms, for instance), but they are typically based on a municipal assessor's drive-by evaluations. Assessed values are often lower than appraised value or true market value.

Property taxes are calculated by multiplying a home's assessed value by the municipality's mill rate—a figure that's typically set annually and that determines the property tax amount. A mill is 0.1 cents, or 0.001 dollars; a mill rate of 1 means paying $1 for every $1,000 of your home's assessed value.

Complicating the math slightly (but potentially easing your tax burden), many municipalities base taxes on a set percentage of your home's assessed value, such as 80% or 90%, a figure known as the "assessment ratio."

To calculate your annual property tax bill, multiply your property's assessed value by the assessment ratio, then multiply the result by the mill rate and divide by 1,000.

In a town with an 80% assessment rate and a mill rate of 24, annual property tax on a home with an assessed value of $200,000 would be:

Table (current)

Flex (altn.)

Note that some properties are located within multiple taxing jurisdictions. You could, for example, receive property tax bills from your town, your school district and, say, a sewer district that funds a treatment plant serving your home. Each taxing authority sets its own mill rate, but will all typically rely on the assessed value determined by your city or town.

Property assessments are typically revised every five years, but your home's assessment may be updated sooner if there are significant changes to your property—either improvements such as major modification or addition to your home or significant damage, such as from fire or flooding. Assessors may learn about changes to your property in a variety of ways, such as when building permits are obtained or in the course of annual visual inspections of town properties.

Can You Dispute an Appraisal or an Assessment?

It is possible to dispute both appraisals and assessments, but there's no guarantee in either case that you'll get what you hope for.

Disputing an Appraisal

The typical reason for disputing an appraisal is that it has come in lower than the offer price you made on a home. When that happens, depending on the amount you are prepared to offer as a down payment, the lender may not be willing to issue a loan large enough to cover the purchase price.

If the lender won't increase the loan amount and you cannot come up with any additional cash, you could request a second appraisal (at your expense). The seller does not need to agree to a second appraisal, however, and could simply accept an offer from another buyer. Even if there's no other buyer waiting in the wings, there's no guarantee a second appraisal would be more to your liking than the first, so it's usually advisable to save the cost of a second appraisal and move on to other properties.

Disputing an Assessment

The typical reason for disputing an assessment, on the other hand, is that you believe it has assigned too great a value to your home, leading to a tax bill that you see as unfairly high. Every municipality that conducts assessments has an appeal process that lets you request a reduction in your home's assessed value.

The appeal process typically entails having a representative of the assessor's office visit your property for a more detailed survey than can be conducted at street level. This could include a walk around the exterior and interior of the home, and could take account of heating systems, appliances, flooring and other features that aren't visible from the street.

If your home has significantly less acreage than similarly assessed properties on your street, or if you have dated fixtures, aging plaster or other attributes that could be considered subpar relative to neighboring homes, this could lead to a reduction in assessed value. If, however, you have made recent upgrades such as bathroom or kitchen renovations that didn't require a building permit, the assessor could boost your assessment accordingly. In any case, appealing an assessment is not guaranteed to lower your home's assessed value, but it won't cost you anything to try.

Note also that if a property tax bill comes due while an appeal is pending, you're obliged to pay the tax based on your original assessment. If your appeal is successful, you'll receive a rebate.

The Bottom Line

Appraisals and assessments both assign value to your home, for different reasons and by different methods. Recognizing the difference can help you better understand your home's resale value and the basis for your property taxes.

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