When it comes to real estate, there are a few A-words that get tossed around (and oftentimes confused). Let me shed a little light on these three common A-words you might hear during your real estate transaction.
- Assessment: A local assessor gives value to a property, which determines property tax valuations. Every town or city assesses properties for property tax purposes. While this is a term to describe a way to place a value on a home or property (much like an appraisal), it’s not the same thing. An assessor will look at sales from recent years to come up with an assessed value. The assessor also looks at improvements that have been made. The assessment is strictly for tax purposes.
EXAMPLE: If the tax rate in your city is $10 per $1000 and your home is assessed for $250,000, your property taxes will be $2,500. But if the assessed value goes up to $300,000 the next time your home is assessed, your taxes would now be $3,000. Therefore, your loan payment would also go up since more money would be needed in your escrow account to cover the new, higher property taxes.
- Appraisal: This is a written document that provides an unbiased estimate of a property’s value. An appraiser is hired by the buyer (or their lender) to determine whether the purchase price and/or loan is in line with what the house is worth. An appraiser looks at similar homes in the area that have recently sold, arrives at an average selling price, and then adjusts for things like the appraised home’s number of bedroom and bathrooms, as well as updates and location, to come up with an appraised value. This is an educated estimate performed by a professional.
- Analysis: (This was a little bit of a stretch, as the real estate industry calls this a Comparative Market Analysis, or CMA.) This is an estimate of a home’s price based on similar, recently sold properties in the immediate area. All homes have a price. That price is determined by several factors from the year the house was built to the schools it’s zoned for and everything in between. A real estate agent will use available data to compare your potential purchase with other homes in the area. Comparable properties will ideally have the same style, age, and location. A good CMA should be no more than six months old.
And a bonus A-word . . .
- Appreciation: This word can sometimes play a part in the three words above. Real estate appreciation is the increase in a property’s value over time. It can be caused by many factors, including market conditions, property improvements, location, and inflation. The biggest factor in appreciation: Demand. When the demand for real estate is higher than the supply, its value will go up.
So, there you have it. The A-words of real estate. Easy to be confused, but all ever so different.
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