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Understanding Value

Updated: Nov 22, 2022

Understanding and defining market value can be complex. Three ways that are commonly used to determine value of a property are the assessment, the CMA (or comparative market analysis) and the appraisal. While they all serve their purpose they are not interchangeable. They are, however, related. The assessed value of a property is determined by the town assessor, or I should say, computed by the town assessor. They have guidelines that they must use to determine the value, such as age of the structure, number of bedrooms and bathrooms, lot size, etc. The assessor does not determine the amount of tax you pay. But the assessed value is used to determine how much the taxes are on the property. The same tax percentage will be used for all properties in that same town and school district respectively. I received a lot of calls this year by frustrated homeowners concerned because their assessments had gone up. For most of these people, the good and bad news is that their house value did, in fact, go up. You could try to grieve your assessment by attempting to show that your house is not worth what the assessment shows. Unfortunately, for almost everyone I spoke with having an appraisal done to prove it was worth less, would be useless. I was able to explain that unfortunately or fortunately, I actually, would be able to sell their property for the new assessed value (or higher) and an appraisal would show recent sales that would actually support the new assessment.

So what’s an appraisal? An appraisal can only be done by a licensed appraiser. They take comparable, recent sales of other properties and look at what is currently available and where they think the market is headed. They will give you a specific number, like an assessment. Unlike an assessment, the appraisal is done for a specific time period (often for the sale of a property, usually required by the lender). It is what that property is worth in that snapshot of time, usually to make sure the lender is protected should the buyer not pay their mortgage and go into foreclosure. It’s also used for estates to determine the value of property at the time of death. Because these are done for a specific moment in time, they are often more accurate than an assessment in terms of current market value. Assessments might be very accurate the moment they are updated, but they are often not updated as frequently as the market changes. That just wouldn’t be feasible in most towns.

The comparative market analysis is a market value of what I think your house could sell for in the current market. We use a similar process as the appraiser, but we have the flexibility to be more subjective. This is what a real estate professional will do if you hire them to help you sell your house. We take into account the same things as the appraiser, but we also can take into account that maybe one of the homes that sold in your neighborhood looks the same on paper, but had a terrible layout and that’s why it sat on the market for so long and sold for less. We will factor in that maybe your house has great square footage and the number of bedrooms and bathrooms that buyers want, but it is decorated in such a way that turns people off. Or it smells like cats, or cigarette smoke. Or maybe yours is cuter. Having an uncluttered house in updated paint colors matters to buyers. And they pay for it. Buyers are Very subjective and what they are willing to pay for a property on the open market (true market value) is affected by many factors that don’t fit well into a formula. I also give homeowners a range of value, versus a specific number. That way the seller can choose based on where they are comfortable, their motivation level to sell, etc. Altough it’s not the same as an appraisal, we do consider that when advising our sellers where to price their home. Most buyers will need a mortgage and the bank will require that the price the buyer is paying is not more than the appraised value. That doesn’t mean the seller can’t list higher or accept more, it just means we have a conversation in advance so they can be prepared with their options.

True market value is determined by a ready, willing and able buyer. What that buyer will pay when a home is active on the open market. But all determinations value of the have their place. It’s important to understand the purpose of each. Especially in a complex market.

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