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Ask McEnearney: What’s the difference between market, appraisal, and assessment values?

This week’s Q&A column is written by Rebecca McCullough of McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact Rebecca at 571-384-0941 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.

Question: What’s the difference between market, appraisal, and assessment values?

Answer: This is a particularly hot topic in Northern Virginia at the moment. The main questions for many are “what are assessment values, how are they calculated, and why do they change?”

Let’s break them down. First, what is market value? Market value is very subjective. There are a lot of sources that will provide a presumed market value for your home. The first one that comes to mind for many is Zillow. I’m sure almost everyone who owns a home has looked up their “Zestimate!” It’s the value that Zillow tells you your house is worth. Is it reliable? Rarely, in my experience.

The “Zestimate” is simply a computer calculation of your home based on data from recent sales in an area. What Zillow can’t do is see the condition of the home, get a feeling for the community, the neighbors, the view, nor the curb appeal. It’s a sample of one, but I just took a peek at my Zestimate, and I can confirm that it’s at least 40% off the mark!

Recently I was showing a client a home with a Zestimate of $1,000,000. My research had revealed that homes in this neighborhood were easily selling at prices over $1M. The home in question had been updated in the past 5 years, and yet it was listed at $950,000. Why? Lots of aesthetic and practical reasons, none of which are known to Zillow’s computer calculations.

Truly, the seller will be fortunate to get $900,000, but is convinced the home is a bargain at its current price because of how it compares to the “Zestimate.”

In fairness, though, market value can be challenging to determine. (The only way to truly know what the market value is, is to put it on the market and see what the market is willing to pay for it!) A good agent will do the research and help you determine an optimal asking price. But it’s important to note that many things can affect this as well, particularly timing and demand. In my view pricing a home is more of an art than a science, and experience helps!

But what about the appraised price?

Once you have contracted to sell a home, the transaction may be conditional on an appraisal. If the buyer is obtaining a loan, the bank will want to verify the sales price. They will send an appraiser to render an objective opinion of the sales price. An appraisal is a formal process to create “an opinion of value at a certain time.”

There are three methods an appraiser will use to determine the sales value: cost analysis, income analysis and comparative sales value. Cost analysis is determined by how much it would cost to replace the property as it stands and is most often used in new construction. Income analysis is used when looking at rental and commercial properties.

Most likely your appraiser will use the comparative market analysis. It is very similar to what a real estate agent does. The appraiser gets very detailed and will assign dollar values to various features of a home in the process. For example, they may add $10,000 for a deck, or $5,000 for an extra bedroom. They typically compare three homes in the area that closely compare to the subject property to support the sales price.

Not surprisingly in this NOVA market, sometimes we agree with appraisers, and sometimes we don’t. We may take exception with the $10,000 credit for the deck when the sellers have put in a $50,000 deck that extends three levels, constructed of Trex™ and is fully lit!

In their defense, appraisers are under a great deal of pressure. Buyers want the property to appraise at sales value. If a home does not appraise at sales price, the buyer may need to bring more money to the closing table. If the property does not appraise, and the contract is conditional on appraisal and it does not appraise at sales price, the buyer may choose to walk away from the deal.

Appraisals are also used for refinancing or when someone wants to take out an equity line of credit, or possibly to transfer property after someone has passed away and there is a real estate settlement.

So, what is assessed value?

Finally, we have the assessed value. This is easy to define, but potentially the hardest to understand. The assessed value of a home is like a Zestimate in that it’s based on the range of values of surrounding homes in a certain area. The assessed value is used to determine the property tax amount. For 2022, Fairfax County property tax base rate is 1.110 per $100 of the assessed value. If your house is assessed at $1,000,000, your annual tax bill will be $11,100.

The assessed value of a home may go up and down over time. The value can be influenced by market conditions. Many may have noticed a decrease after the financial crisis 15 years ago but have likely seen a steady rise since. If you recently bought your home, you may have seen a jump based on the new sales price.

At the moment, it appears Fairfax County is updating many homes’ assessed values. If you have benefited from a low assessment value (lucky you!) and have seen significant jumps in the past couple of years, it’s the County bringing assessment value up to meet current market values. We know homes values have drastically increased in many areas over the past few years.

Typically, the assessed value will still be lower than what you might get on the open market. This is a good thing! I would exercise caution before appealing to the County in this case, as they may decide it’s not high enough if they do a detailed review. If you feel your assessment is too high based on current market values, then you may have a course of action for appeal. Do your research!

Some homes may not have gone up much at all. This is likely because the property was sold recently, and the assessed value is already where it should be. So, if your neighbors and friends are chatting about assessment values, know that each case may be different.

If you’re looking to further understand your homes market, appraised or assessed values, reach out to your local Realtor. We’re here to help!

Rebecca McCullough has built a successful real estate business in Alexandria and Northern Virginia by providing excellent service to her clients. If you would like more information on selling or buying in today’s complex market, contact Rebecca today at 571-384-0941 or visit her website

If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703.549.9292.

McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. Equal Housing Opportunity. #WeAreAlexandria

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