It can be confusing to get a lot of numbers at you during a house search. Every home has an appraised value, which comes from an appraisal of the property’s value – but there’s also fair market value and an appraisal value. And they are not exactly the same. In fact, all three values can (and often are) quite different.
However, the most confusing number is often the estimated value. It usually has little to do with the other numbers and rarely affects the final amount you could pay for a home. But don’t take our word for it – let’s see what a pro has to say.
“Occasionally, a buyer sees what the appraised value is online and asks why the general market value is significantly higher than the appraised value,” said Ben Nemec, a top real estate agent in Huntsville, Alabama, who sells real estate 62% faster than the appraised value. average Huntsville cop. “And then we have to explain that the appraisal value has absolutely no influence on the market value.”
So there you have it, a clear distinction between estimated value and what you could pay for a home based on market value. But is that all? Is there no correlation between these values? For more details, we delved into the investigation and spoke to Nemec and Kris Poulson, reviewer for Utah County, Utah.
What is appraisal value?
The estimated value of a home is a dollar value assigned to the property for tax purposes. “Estimated value is really only used by the tax inspector to determine what the taxes on a property should be annually,” says Nemec.
This value is assigned by a government assessor. Each appraiser is usually in charge of a specific tax district where they are responsible for managing the property valuations in the area. The process for measuring the estimated value is often similar between different tax districts, although you may find some variations here and there.
For homeowners, the number you put on your real estate tax bill is often a direct result of a property valuation performed by a local tax advisor. If you’re looking to buy a home, you can use its appraised value to determine how much your future property taxes could be.
How is the appraisal value determined?
How the estimated value is determined depends on where a property is located, as the process can change between different tax districts. So it is important to check how the process is carried out in the area where you want to buy a house. However, many appraisers will consider the fair market value of real estate in the area when: determining the estimated value of a property. In some cases, the appraisal value may be calculated as a percentage of the fair market value.
Since the market value can affect the estimated value of a property, it is important to consider: types of factors that can affect market value. This can be the location of the property (think beach vs downtown vs suburb vs rural), the condition and quality of the property, and how large the property is.
In addition, local real estate values and market conditions, including the level of supply and demand, can influence the real estate value. Certain home features, such as a swimming pool, and the findings of a home inspection can also affect a property’s value.
It is important to note that your estimated value may be lower if you are an owner-occupier (not a landlord) and qualify for a exemption from the house. This wouldn’t necessarily change a property’s market value, but it could lower your property taxes.
Understanding different property values
You typically have three different values that represent your total property value, including fair market value, estimated value, and appraised value. Here’s how they work.
Fair Market Value
Your fair market value is the amount for which a property can be sold based on a number of different factors, including location, condition of the property, square footage and features of the home. The market value may change if these factors change or if market conditions change. For example, if real estate inventory is low and demand is high, the market value can rise much higher than is common in some areas.
Fair market value is a direct result of market demand and what buyers are likely to be willing to spend.
The appraisal value is the taxable value of a property and is often based on a percentage of the fair market value. Government assessors assign estimated values to properties within their tax districts, usually counties or municipalities. Each tax district can have its own rating percentage, which can be determined by state and local governments. The higher the rating rate, the more property taxes you are likely to pay.
The appraised value is an estimate of the value of a dollar assigned to a property by a licensed appraiser. This is usually a required step if you want a mortgage from a lender. Appraised value is determined by the appraiser, but is often influenced by factors that also affect a property’s market value. This can include the size, features, condition, and any changes in a home’s market conditions.
Since the appraised value is assigned by a professional appraiser, the amount may differ from the fair market value of the property. This is because an appraiser may not come to the same exact conclusion for the value of the property as a seller, buyer, or real estate company.
Estimating the estimated value of your property
You usually have two ways to: estimate the estimated value of your property depending on the information you have. However, both ways should give you the same end result.
The first way takes the market value of a property and multiplies it by the rating percentage. Then divide the product by 100. This is what the formula looks like:
Appraisal value = (market value x appraisal percentage) / 100
So if the market value of a property is $400,000 and the appraisal rate is 80%, you would have an estimated value of $320,000.
The second way multiplies your tax bill by the tax rate and then multiplies that product by 100. Here’s the formula:
Estimated Value = (Property Tax x Tax Rate) x 100
With a property tax of $3,200 and a property tax of 1%, your estimated value would be $320,000.
Any of these formulas will work for estimating your estimated value, although it may be easier to do based on the information available.
Calculate property tax
Calculate your property taxes is not difficult and often only requires a few numbers, including the appraised value of your property and your property tax rate. Multiplying these numbers will give you a good estimate of your property taxes. This is what the formula looks like:
Property tax = appraisal value x rate of property tax
Using the formulas in the previous section, you should be able to calculate your estimated value. Or you can search public records online or contact your local tax advisor. Check your local government’s website or contact them to find your property tax rate, also known as a mill rate or mill levy.
Another way to calculate your property taxes is to use this type of formula:
Property tax = fair market value x appraisal ratio x windmill rate
So if a property has a market value of $400,000 in a county with a 50% appraisal ratio and a mill rate of 20 mills (or 0.02 in decimal form), you would end up with an effective property tax of $4,000 ($400,000 x 0 .50 x 0.02 = $4,000).
Dispute Estimated Value
You may have a higher property tax assessment than you would like, which may be the result of a high appraisal value of your home. In some cases, you may feel that the estimated value is incorrect. Fortunately, you should be able to appeal to your local government office to try and resolve any applicable issues, which is one way to try and lower your property taxes.
For example, this is how the process works in Utah County, Utah: “If the property owner disagrees with the appraised value, they can appeal the value to the Equalization Board,” Poulson says. “The equalization committee is a function of the audit office and creates neutrality between the valuation agency and the property owner. If the owner disagrees with the county’s decision, they can appeal to the state tax board.
Don’t feel like you’re going against established government rules when you appeal. Property owners know their property best, so it can be helpful for an owner to clarify things for local tax advisors. Additionally, a tax inspector may have to assess tens of thousands or more of properties, so it’s not unheard of to have some inaccurate assessments, especially if changes have been made to properties.
Benefits of Knowing the Value of a Home
Knowing the value of a home probably makes it easier to plan and adjust your financial goals. This can include having an estimate of your property taxes, as well as knowing how much you may have to pay when buying a home (or how much you can earn when selling a home).
Knowing this information ahead of time can pave the way for making other important financial decisions, such as saving or investing money. And if you’re considering refinancing your home, knowing its value can help you determine what kind of cash-out refinancing options you have.
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