Why is there sometimes a huge difference between what the Assessor says a property is worth and what an appraiser says? I’ve included five points below to help answer this question.
Base year value: Assessments in California are based on the year the property was purchased (“base year value”). If a property was purchased in recent years, the assessment might be similar to current market value, but if a property was bought in 1980, for example, the assessment could be significantly less than what the property is currently worth since property taxes are only allowed to increase by 2% annually according to Proposition 13.
Mass-appraisal process: The Assessor’s Office uses a mass-appraisal process that comes up with a value based on crunching numbers behind a desk. This process is not able to account for condition, quality of construction or other issues an appraiser is able to see in person.
Assessments may be outdated: When the market changes rapidly, the Assessor’s Office may or may not stay on top of market movement in all cases. For example, in the past two weeks I’ve done research for several Sacramento property owners and their assessed values were literally hundreds of thousands of dollars too high.
Assessment figures are based on January 1: Property tax assessments are based on January 1 of the given year (date of assessment), whereas an appraisal could be based on any date.
An assessment is not market value: Assessment figures are not the result of the interaction of buyers and sellers in an open market, so they cannot be considered to demonstrate “market value”. This is one reason why appraisers do not use the assessed value on a property as a “comparable” in an appraisal report. Read Fannie Mae’s definition of market value here.
All things considered, can you see why there might be a difference between assessed value and appraised value? This is exactly why appraisers don’t give weight to tax assessments during the appraisal process and why lenders do not lend on tax assessment figures. Let me know if you have any questions or insight.
If you have any real estate appraisal, consulting, or property tax appeal needs in the Greater Sacramento Region, contact me at 916.595.3735, by email, on our appraiser website or via Facebook.
Fantastic article Ryan. The base year value is interesting. I am guessing most of the clients you deal with where their assessment is too high have not lived in their homes 20+ years? Are they most likely to have lived in their house less than 5 years? Just curious.
Thanks so much, Bryan. Yes, the bulk of my clients purchased somewhere in the past 10 years for the most part (often within 5 years).
Great post Ryan. I know most people do not know what goes into thae assessment of property.
Thanks, Tom.