Assessed value and appraised value are two separate methods that are used to determine the value of a property. Both of these methods are used to get the true value of the home, but the difference is how these two are evaluated, and what the evaluation is to be used for. An appraisal is generally performed to determine the value of the home for the purpose of a home loan or purchase. On the other hand an assessment is generally performed by government tax assessors and is used to determine the property’s tax.
To make sure a potential buyer is not obtaining a home loan amount for more than the property is currently worth, the mortgage lender will require an appraisal to be done. When first originating a mortgage loan many lenders use a percentage guideline called loan-to-value (LTV) to determine how much they will allow to be lent. For instance, if a lender only allows a maximum loan-to-value of 95% and the home has currently been appraised at $100,000, the customer is only allowed to borrow $95,000. That means that the higher the home is appraised for, the more funds the bank will be willing to lend.
In general, appraisals are done by a independent third party appraiser that is not affiliated in anyway with the seller or potential buyer of the home. Whatever amount the home is to be appraised at will be considered as the current market value. The current market value is determined by the estimate of the appraiser along with the comparison of the property to other similar homes in the area. Some things the appraiser will look at when doing their estimates is the price of other homes in the area, views and location, any amenities, and the overall condition of the home.
Many borrowers tend to get a Brokers Price Opinion (BPO) confused as an appraisal. This is false, a Brokers Price Opinion is only done to get a rough estimate of the homes value. This is generally only used to avoid the cost of an appraisal during a refinance, loan modification, short sale, or other types of loan workouts.
In most areas around the country the local government in which you live is going to charge property tax to anyone who owns a property. The assessed value of your home is going to be evaluated at the tax assessors office. Unlike the appraised value, the assessed value is not actually performed on an individual basis. This method will only compare similar homes in the area to get a rough estimate on the value of the home and is quite similar to a BPO.