Big three: What are assessments, appraisals, and market value?

With all the information about today’s housing market, it’s easy for buyers, sellers, and observers of real estate activity to be confused about the difference between an assessment and an appraisal and the relationship of each to market value. 

Assessments are used by the local government to establish tax payments and generate revenue. Assessors verify area sales data and group similar properties for purposes of comparison. Though market data is used during this process, tax value, which is a fixed figure, doesn’t necessarily reflect market value, which fluctuates with interest rates, inventory, demographics, government incentives, and the overall economy.

Assessments offer a snapshot of value as of January 1 of each assessment period; assessors depend on the filing of building permits to update their records after this date. So if a homeowner undertakes an extensive remodeling project in February without filing the necessary permits, the increase in value won’t be reflected until the next assessment. 

There’s a close correlation between tax rate and assessment since these levies help fill municipal coffers, and values sometimes have to be adjusted in order for revenues to remain consistent from one year to the next. Both Charlottesville City and Albemarle County assess on a yearly basis, and if assessments decline by, let’s say three percent, the tax rate may have to be increased by three percent to maintain the tax base, depending on the status of other revenue streams. Because assessments don’t equate to market value, realtors must use caution when factoring them into their listing prices.

An appraisal is conducted by a certified independent professional who visits a property and compares it to similar houses in the area. By examining recent sales and current listings, the appraiser comes up with an estimate of the property’s value, though he or she often lacks either familiarity with or access to the  comparison parcels, a factor that can affect the accuracy of the findings. 

Appraisals are required by lending institutions to ensure that the value of the house being purchased isn’t lower than the amount of the loan they’re approving. With today’s uncertain market conditions, establishing the values needed to secure financing is increasingly difficult, especially since many lenders now deal only with a list of approved vendors. Appraisers from outside the Charlottesville-Albemarle area are limited by a couple of key factors, a situation that has some realtors worried.

“I’ve definitely seen a rise in the number of out-of-area appraisers,” says Amy Webb of Nest Realty. “This causes concern on two fronts. One, our market is unique, and out-of-area appraisers might not be familiar with it. And two, how are they getting their data? How many of them have the network required to get the background they need?”

Finally, market value is determined by supply and demand. As inventory increases, prices decrease– a situation we’re all too familiar with given current conditions. While an appraisal is often a closer reflection of market value than an assessment, neither is foolproof. A comparative market analysis (CMA) can often offer a more precise range of value. Most realtors provide CMAs so their sellers have a reasonable expectation of selling price, though it’s important to note that this expectation can change markedly over time. What seems reasonable when a house is introduced to the market may not be so reasonable six months down the road.

Ulitmately, market value is determined by what a buyer is willing pay for a particular property on a particular day. And in today’s economy, that figure is more often than not a moving target.