Real Estate 101: The Difference Between Appraised Value and Assessed Value

Do you know the value of your home?

That’s actually a trick question.

The value of a residential property actually depends upon who is asking. That is why the appraised value and the assessed value are usually not the same things. They may be similar, but they can be several thousand dollars apart. Why is that?

The Assessed Value of a Property

The “assessed” value is based upon how the state or local government values property. It is used to assess property taxes. Each parcel of land has a value assigned to it by the local county assessor. That value then determines the appropriate tax rate for the real estate. However, this value is not necessarily how much the home should be sold for on the open market.

Assessors in Iowa try to make the assessed value as close as possible to the market value. They will generally use one of three methods to do this.

• Market approach. The assessor will use a sale ratio to determine the general rate in the community.
• Cost approach. This estimate involves guessing how much it would cost to replace a home in similar condition.
• Income approach. The assessor will use this approach if the property produces income, such as by having a rental unit. It focuses on the property’s ability to generate revenue on an annual basis.

The Appraised Value of a Property

A property appraisal will determine what the home should sell for to an interested buyer. It has nothing to do with taxes and focuses on what a buyer would pay for the house based upon the condition and amenities included in the property. The appraiser will consider things like:

• Size
• Location
• Type of construction
• Upgrades
• Comparable sales that have occurred in recently

The value of the land is often appraised separately from the value of the property.  Often, a buyer’s lender will only loan up to the amount of the appraised value for a mortgage.  This comes into play when a buyer’s offer is “contingent upon the appraisal.”

The Differences Between the Two Values

Although the appraised value and the assessed value can be similar, they are often not. The assessed value of the home likely will not keep up with the market. The market fluctuates frequently, but the value of your home is only assessed for tax purposes every two years in Iowa. If you made significant improvements to your home in the past year, those likely would not be included in the assessed value. If there is a market downturn, the assessed value may be much higher than the appraised value of a home.

An appraised value can sometimes be used to challenge a tax assessment. If you think that your home’s assessed value is too high, causing your property tax bill to be higher, you can possibly use that information to challenge the taxes owed. You can find the assessed value of your home on your local county assessor’s website. Polk County’s real estate search can be found here.

To learn more, you will want to reach out to an experienced Iowa real estate attorney for help. Call Danilson Law today to learn more at 515 512 5500.