Four Numbers, One House:
What
Is Your Home Actually Worth?
One house. Four numbers.
A homeowner preparing to sell may
encounter a Realtor's recommended listing price, an appraiser's opinion
of market value, the town assessor's appraised value, and the
property's assessed value.
They may be remarkably close.
They may be tens or even hundreds of thousands of dollars apart.
And none of that necessarily
means somebody got it wrong.
The confusion comes from treating
these four numbers as though they are different answers to the same question.
They aren't. Each number exists for a different purpose.
1. The Realtor's Recommended Listing Price
The question it answers: At
what price should we put the house on the market?
When I recommend a listing price,
I am not performing an appraisal. I am developing a marketing and pricing
strategy.
Certainly, recent comparable
sales are an important part of that analysis. But so are homes currently
competing for the same buyers, properties that failed to sell, current
inventory, buyer demand, condition, location, unusual features and what I know
from experience about how buyers are likely to respond to a particular price.
There is also strategy involved.
Suppose comparable sales suggest
that a home is likely to sell somewhere around $625,000. Listing it at $599,000
might expose it to a larger pool of buyers and potentially generate multiple
offers. In another situation, listing at $649,000 might make more sense.
The objective isn't to produce an
official declaration that "this house is worth $X."
The objective is to choose the
asking price most likely to produce the best result for the seller.
Listing price is a marketing
decision.
2. The Licensed Appraiser's Opinion of Market Value
The question it answers: Based
on recognized appraisal methods and available market evidence, what is this
property worth?
An appraisal is a much more
formal process.
A licensed or certified real
estate appraiser develops an independent opinion of the property's market value
as of a particular date. For most residential properties, comparable sales are
central to the analysis, with adjustments made for differences such as living
area, condition, lot size, location, garages, finished basements and other
features.
In a financed purchase, the
appraisal is generally performed on behalf of the lender. The lender wants to
know whether the property provides adequate collateral for the amount being
borrowed.
This creates an important
distinction:
An appraiser is not deciding
what price will best sell the house. A Realtor is not performing a lender's
appraisal.
A home could therefore be
appropriately listed at $599,000, receive competing offers and sell for
$630,000, with an appraisal subsequently supporting a value of $630,000.
Those numbers tell different
chapters of the same story.
3. The Town Assessor's Appraised or Market Value
The question it answers: What
value has the municipality assigned to this property for taxation purposes?
This is where the terminology
starts causing headaches.
Your town's records may show an appraised
value, market value or similar figure intended to represent the
property's fair market value for municipal assessment purposes.
It should not be confused with an
appraisal prepared for a mortgage lender or with a Realtor's analysis of the
property's current market.
Municipal valuations are
developed for property taxation and are generally established as part of a
town-wide revaluation process. Consequently, the number shown in the assessor's
records may not reflect what a particular property would sell for today.
Real estate markets can move
rapidly. Municipal revaluations occur periodically. Individual properties can
also have characteristics that mass-appraisal methods don't capture as
precisely as an analysis performed specifically for that home.
So when a homeowner says,
"But the town says my house is worth $540,000," my response is
essentially:
Yes, but the town isn't trying
to sell it.
Nor is the town making a mortgage
loan on it.
4. The Assessed Value
The question it answers: What
portion of the municipal value is subject to property taxation?
In Connecticut, residential
property is generally assessed at 70% of its fair market value.
If the assessor assigns a
property a fair market value of $600,000:
$600,000 × 70% = $420,000
assessed value
That $420,000 figure is then used
with the municipality's mill rate to calculate the property tax.
This is particularly confusing to
buyers browsing real estate websites because they may see a house offered for
$600,000 or $650,000 and then discover an "assessed value" of only
$420,000.
That does not mean the
town thinks the house is worth $420,000.
It means $420,000 is the taxable
assessment derived from the municipality's $600,000 valuation.
Put Them Side by Side
For a hypothetical Connecticut
home, you might therefore encounter:
Realtor's recommended listing price: $599,000
What it means: A marketing strategy intended to produce the best sale
Licensed appraiser's market value: $625,000
What it means: An independent opinion of current market value
Town assessor's appraised/market value: $600,000
What it means: Municipal valuation for property tax purposes
Town assessed value: $420,000
What it means: 70% of the municipal valuation, used to calculate taxes
All four numbers can be perfectly legitimate at the same time.
So What Is the House Really
Worth?
There's one more number that
deserves the last word:
What a ready, willing and able
buyer will actually pay for it.
That is why I would never tell a
seller that a Realtor, an appraiser or a municipal assessor can dictate exactly
what a property will sell for.
We can analyze comparable sales.
We can study market conditions. We can make adjustments. We can apply
professional experience. And we can arrive at very well-supported opinions.
But ultimately, the market
decides.
A useful shorthand is:
The Realtor recommends how to
price it.
The appraiser develops an opinion of its market value.
The assessor values it for taxation.
The assessed value determines the taxable portion of that municipal valuation.
And the buyer determines what someone will actually pay for it.
Four numbers. One house. Four very different jobs.