Thursday, June 4, 2009

Tax Assessment vs. Bank Appraisal

In a recent post, I talked about the difference between the tax assessed value of your home and the market value of your home. There is a third important estimation of value when you are selling your home or refinancing a mortgage, which is an appraisal.

An appraisal is typically called for by a lender in order to determine the true and current market value of your home. Banks need to determine this value in order to assess the level of risk in granting you a loan. I.e., the bank wants to know if your home is worth at least as much as they are loaning you, to ensure that they can recover their money if you should default on the loan.

A licensed appraiser uses methods similar to those used by tax assessors and real estate agents to determine value. Typically they will look for sales of comparable properties in the area within the past 3 months (that time frame may vary, depending on the strength of the local market). They will also visit the property in question to determine its condition in relationship to other properties in the neighborhood. If the appraiser concludes that the price being offered for the home exceeds its true value, the bank will not approve the loan. In this case, either the seller must reduce the price or the buyer must agree to reduce the amount of their loan and finance the difference some other way. An appraiser can also site specific work orders that need to be performed to bring the value up.

Questions or comments? Give me a call at 206-708-9800 or leave a comment here.

No comments: