What is the value of a piece of real estate? In a lot of ways, it really does depend on who you ask.
For first-time homeowners, investors, or developers, it’s important to understand what exactly people mean when they talk about the value of a property, and, just as importantly, how this valuation is determined.
In particular, there is one particular question that tends to come up frequently: Why is there such a difference between market value, assessed value, and appraised value for real estate?
In many cases, new homeowners are stunned to find that there is a difference – and sometimes a fairly substantial one – between the list price of a home, the appraisal value of a home, and the tax assessed value of a home. And it’s not only a question for new homebuyers, either. In some cases, homeowners or investors may have owned a piece of property for years, only to be stunned by changes in the tax assessment of their property down the line.
This can be crucial to understand! After all, as Amy Fontinelle of Investopedia points out, property taxes are “a significant expense for homeowners, year in and year out,” since “even after you’ve paid off your mortgage, property taxes remain.”
It’s important to get a handle on these different methods for determining the value of a home as early as you can, so that you can budget appropriately, and prepare more completely for your complete financial future.
Tax Assessed Value
What you pay regularly in property taxes is determined by a number of factors, chief among them the tax assessed value of your property. So, assessed value might be thought of as the value of a residence, as determined for tax purposes.
The tax assessed value of a home or piece of property – it could be a commercial property, an undeveloped property, or even a vacant lot – is determined on a semi-regular basis by government assessors for the city, county, or municipality in which your property is located.
Assessors are responsible for determining the value of properties in a certain jurisdiction. Broadly speaking, assessors use historical data and trends, property data, comparable sales, and a number of other factors to determine the assessed value of a property. Typically, these calculations do not necessarily factor in the conditions or aesthetic qualities of a certain property or neighborhood.
It’s important to recognize that assessed value does not always reflect market value, and is not necessarily a reliable indicator of market value. This value is primarily relevant to your local tax authorities, and will determine how much you pay in applicable property taxes on a regular basis, along with a number of other factors (exemptions, tax rate, and so on). In many cases, is possible to appeal an assessment if it seems to inaccurately evaluate your property (more on that in a bit).
The appraised value of your home is determined by a licensed appraiser, who generally considers not only local real estate data and trends, but also inspects the interior and exterior of your property in order to determine its value. This is a fairly typical part of the homebuying process.
The appraisal process determines a value that is relevant to mortgage lenders. In a nutshell, the goal of determining the appraised value of a property is to help assure a lender that they are making an informed, sound investment when offering a loan. They do not want to be on the hook for lending more than the property is worth.
In some cases, the appraised value of a property could determine whether or not a loan goes through; lenders may not approve a loan if the appraisal falls short of the list price. In cases like this, though, it is often possible to seek out a second appraisal, or to work with the lender to develop a strategy that allows the purchase to carry forward.
In all, considering these two different methods for determining the value of a property serves as an important reminder of just how complex, and costly, the real estate process can be.
This is particularly true in Chicagoland, where our unique marketplace and our one-of-a-kind real estate, zoning, and tax laws make having the right legal and financial insight all the more important. As an example, 2018 saw many homeowners and businesses in Cook County facing higher-than-anticipated tax bills, due to changing assessments and local tax rates.
In situations such as these, when a deep knowledge of Illinois real estate, finance, and insurance may come into play, it can be reassuring to know that you have a partner on your side. That’s where the Gunderson Law Firm can step in.
Whether you are a couple wanting to buy or build a house, a corporation converting commercial properties to residential, or a commercial developer looking to change the Chicago skyline, the Gunderson Law Firm can assist with a broad range of legal services, including:
- Residential Real Estate
- Commercial Real Estate
- Purchases and Sales
- 1031 Tax-Free Exchanges
- Mortgage Conveyancing & Advice
- Real Estate Litigation
- Title Insurance
- Title Examinations & Disputes
- Asset Protection / Trusts
- Estate Planning / Wills
- Reverse Mortgages
- Property Development
- Condominium Law
Don’t hesitate to give us a call or drop us a line to keep the conversation going.