What is the difference between an appraisal and an assessment?

In many ways, an assessment is almost self-defining, in that every so often, municipalities assess the value of houses in a given area or community. They do this for one overarching purpose: to determine what homeowners will pay in property taxes, an expense for which every homeowner is responsible. Typically, among those who are still paying off their mortgages, property taxes are included as part of their monthly mortgage bill. Those who already own their house, meaning they’ve paid their mortgage in full—ideally set aside money each year so they have the funds to pay by the due date.

The property taxes that someone pays in any given year is ultimately determined by the assessment.

Perhaps the biggest distinction between an appraisal and an assessment is what they entail. Municipalities send out one or several tax assessors to go around the city and assign values to existing homes. They use a number of different variables—such as sales comparison data and cost method—to determine what a given property is worth.

One thing they don’t do—at least not typically—is physically go inside the house to see how many rooms there are, what installations are in place and observe other physical aspects of what makes a house a home. Because of this, assessments may not adequately reflect a property’s true value. The assessment is one step in the process conducted by the municipality to determine what homeowners pay in annual property taxes.

There is no hard and fast rule as to how often assessments occur. That is determined by the local tax assessor’s office.

An appraisal is a much more thorough evaluation. Lenders typically require a professional appraisal to be done on the property during a purchase or a refinance transaction. This helps determine fair market value and the amount of loan-to-value. For a homebuyer, this also helps to ensure you aren’t paying too much.

An assessor only takes into consideration external factors like some of the ones mentioned above; a professional appraiser considers many unique aspects of a residence. These are a handful of them:

• Number of bedrooms
• Location
• Architectural style
• Square footage
• Construction materials used in installations (e.g. marble countertops, hardwood floors, etc)
• Window composition
• Age of house
• Roofing material
• When the roof was last installed or updated
• Chimney
• Insulation type
• Basement and whether it’s finished
• Foundation (e.g. Concrete slab, crawl space, etc.)

And that’s just the beginning. While it’s not an exhaustive list, it gives a better sense of the many variables used by an appraiser.

Generally speaking, mortgage lenders will request an appraisal to obtain a detailed understanding of the property based on overall condition, conformity to the area, and market value. The appraisal report is used to assist the lender in its lending decision.

Ideally, appraised values and assessed values would be identical. That’s rarely the case, mainly because the processes involved in each are so different from one another. Whereas an assessment is an educated guess, an appraisal is an informed, comprehensive calculation.

As a prospective or current homeowner, ensure that you know both of these figures. If its assessed value is higher than its appraised, you may have a case for paying less in property taxes to your municipality.

For more information on any aspect of the homebuying process, contact your Guild Loan Officer. We’ll guide you home.