Q: We have a home we own outright that has a protested tax appraisal decreased to $227,000, although similar homes on the block are appraised for $240,000-plus. For planning purposes, can we expect an appraisal for a reverse mortgage coming up with a similar figure?
A: In general terms, the answer is no. There are too many unknowns to confidently rely on this information for planning purposes. That said, it wouldn’t surprise me if an appraisal for your reverse mortgage produced a similar result.
Now that I got my political answer out of the way, let me get to the specifics. There are two reasons why this information shouldn’t be relied upon for planning purposes.
1. We simply don’t have enough information about time frames, market trends or any differences between the subject and the other appraised properties on the block. 2. Although assessed values are often market-based, they’re not good indicators of current market value for lending purposes because they can be dated and are developed with a different focus.
Because markets tend to change over time, appraisers will assign a specific date to the values noted in their reports. In appraisal terms, this date is known as the effective date and it refers to the point in time the appraiser developed their analysis and conclusions. In this case, the date of the tax appraisal and the effective dates of the other appraisals on the block are not provided. As such, even if the values are accurate and the other properties are similar, any change in market conditions would not be accounted for.
In addition to effective dates and market conditions, other concerns such as curb appeal, site size, square footage and design need to be considered when valuing a property. To do this, an appraiser will compare the subject’s features and amenities to other properties in the area that sold recently. When a difference is noted, a market adjustment is made to the sales price of the comparable property to account for the variation. The adjusted value of these properties assists the appraiser in estimating the market value of the subject property. Even if the other homes on the block were recently appraised, they may differ from the subject with respect to condition, utility and appeal. Without accounting for these differences, the values of the other properties are not reflective of the subject. In addition, only market-tested and confirmed closed sales should be used for this process. Applying this same procedure to the appraised value of other properties in the area is not an acceptable appraisal practice.
The term “value” can have many meanings in real estate. That’s why appraisers specifically define the type of value being appraised within their reports. In the example noted above, the value of $227,000 is the product of a tax assessment. Although many assessed values are market-based, they are only completed periodically or when a property transfers or is improved. Different effective dates create the same concerns noted above.
Finally, since this value is being used to estimate tax liability, an extra effort to be fair and consistent is made. In areas where taxes are based according to value, homeowners can appeal the assessed values if they believe they are wrong. However, for obvious reasons, appeals only occur if the owner feels the value is too high. I haven’t come across a homeowner yet who wanted to appeal their assessed value for being too low. In short, given the purpose of the assessed value and the concerns to be equitable, it’s not reasonable to rely on this valuation for planning purposes.
So why did I say I wouldn’t be surprised if the mortgage appraisal was similar to the values noted above? Well, if the effective dates of these appraisals are recent and the other homes on the block are similar to the subject, it would stand to reason the mortgage appraisal would have a similar value. The difference in value between the tax appraisal and the other appraisals on the block are less than 6 percent. Values this close tend to lend some credibility to one another. However, obtaining an appraisal from a qualified local appraiser is the only way to tell.