Housing market conditions are always changing. The value of a home is not static; rather it tends to be cyclical in nature. It may represent a substantial amount of your personal net worth, or on some (unfortunate) occasions, the market may cause you to have negative equity. In other words, you owe more on it than it is worth. Some people refer to this as being “upside down” on a loan. The ideal is to have enough equity in your home to leverage it to your advantage. Finding the right strategy to take advantage of it requires patience, a thorough understanding of your total financing picture, and careful planning.
A tax assessment is the value placed on your property by a county or municipality taxing entity. It is calculated for the purpose of levying real property taxes. These taxes help governments operate, and are often used for road maintenance, schools, fire departments, and prisons. The market value of a property is the amount of money you could get for your home if you were to sell it at current market prices. These prices fluctuate on a near daily basis, based on what a ready, willing, and able buyer is willing to pay. The appraised value of a property is a value calculated by a professional real estate appraiser. This value is based on similar properties, and what they have sold for. Therefore, an appraised value is historical in nature. Home equity is your home’s market value, minus the principal balance of your mortgage loans that you have outstanding on the property.
The assessed value of the property, for tax purposes, may be much lower than its actual market value. Or, it can be higher, depending on whether or not the real estate market is appreciating or depreciating. Most taxing entities only conduct wide scale reassessments every several years. A higher tax assessment doesn’t necessarily increase the market value of your home or your level of home equity. It just increases your annual real property taxes. If you believe the assessed value is too high, there is a well-established process of challenging the value, through your municipality’s Assessor’s office. Rarely will a lender accept your tax assessment as your home’s market value. Most prefer an independent appraisal by a license real estate appraisal.
A licensed Realtor can help you sort out the various values and help you in considering all of your options for real estate financial decisions.