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ARDELL's Seattle Area Real Estate Blog

May. 18, 2014 - What is Appraised Value vs Market Value or Assessed Value?

Current Value of a home is always somewhat subjective and accurate only to the degree required for a given purpose.

When buying and selling a residential property to live in, you are basically dealing with FOUR different values to four different purposes all at the same time. Let's address them in chronolocigal order.


The Tax Assessed Value of the home establishes the yearly amount of Real Estate Taxes you will need to pay. While you may not think of this as the first valuation of importance when buying or selling a home, it is, and here's why.

When a buyer goes to their lender to get a pre-approval before they even go out to look at homes to purchase, the lender is not really qualifying them based on a purchase prie, even though the pre-approval comes out in writing as a purchase price. The letter says you qualify for a home priced at $650,000 with 20% down. That is what the pre-approval  letter says. BUT that is a conversion of what the lender actually did to give you that approval. All lenders are approving you based on monthly payment, not purchase price. They convert it to a price because that is what they think everyone wants, and usually but not always, that works. UNTIL you are buying a screaming deal or a condo-townhome vs a house. Then it doesn't work. So you need to understand the basic assumptions.

PITI + RE Taxes + Homeowner's Insurance + Condo FEE

The lender is making some assumptions as to the above when giving you a pre-approval letter. If you are saying you want to buy a single family home and not a condo, then the condo fee will not be used to determine the amount you are pre-approved to purchase. The lender will ASSUME an amount for RE Taxes and Insurance. Consequently the pre-approval is ony as good as these assumptions turn out to be later when you choose a property to purchase.

IF you are qualified up to $650,000 as noted above, the lender may assume RE taxes of $6,500 a year and Homeowners insurance of $650 a year. If you are lucky enough to buy a screaming deal, then the ASSESSED VALUE will be much higher than the Price Price AND the RE Taxes will be much higher than the lender assumed they would be when they told you how much home you could buy AND your loan can fail and you can lose your Earnest Money if you find this out too late. Same is true if you buy a Condo instead of a house.

So Assessed Value actually kicks in first, as it is influencing the amount noted on your preapproval letter, before you even go out to see homes to purchase.



This is actually a fourth valuation method not noted in the caption of this post in that it is not the Assessed Value or the Appraised Value or Market Value. It is related to all three, but a mash up of all potential outcomes and values. It comes in SECOND because most buyers are looking at homes that have an Asking Price based on a CMA (Comparative Market Analysis) and then the buyer is changing that up or down in their Offer Price based on specific market conditions on the day of offer.

A seller and the seller's agent are looking at the same information as an appraiser and adding a layer of "what will the market bear" and also what does the seller want in terms of price and terms. An Asking Price should not be higher than 95% of anticipated sold price. Some sellers will price higher and often because they are testing the market and not really in a big hurry to sell and leave. Some sellers want to stay after closing until they find a house to move to and those sellers will usually prie lower so as to have a pool of buyers to choose from in order to find one who will not require that they leave on the day of closing. What a buyer is going to offer on a house is always an unknown to the seller at the time they establish the Asking Price.

How close the Asking Price is to Market Value and whether it is higher or lower is something the buyer has to consider in their offer strategy. All subjective calculations, but not without solid basis. 






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ARDELL DellaLoggia of Sound Realty on Seattle Real Estate process and market including Kirkland, Bellevue, Redmond, Green Lake and most areas around the top of Lake Washington North of Downtown Seattle. Phone: 206-910-1000 - Mailto:ARDELLd@gmail.com

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