The terms assessed value and appraised value often come up in conversation with both buyers and sellers. Unfortunately, these terms tend to be misunderstood. Throw market value into the conversation and things can get even more confusing.
In very basic terms, the assessed value and market value of a home or parcel are both found on the property’s Hawaii County Tax Record. The County of Hawaii determines both of these values, but the owner’s annual taxes are based only on the assessed value, and that value can change annually.
The County determines a property’s market value based on its idea of what the property is valued at, but this valuation is almost always below the actual list price. List price is most often based on comparable properties that have recently sold. Analyzing comparable sold properties, as well as the difference between their sold price and their market value, can help determine what a newly listed property’s price should be. My research has found that properties are selling from 9% to 48% above their market value! This can be a very important bit of information.
Appraised value is a horse of a different color. This is determined by a licensed appraiser who, during the escrow process, is sent out by the buyer’s lender, or is hired directly by a seller, to determine the property’s current value.
The assessed value of a property is almost always less, sometimes considerably less, than the appraised value. This makes total sense because a homeowner wants to pay the least amount of property taxes. But, when determining a home’s list price, or what to pay for a home, the appraised value is most important.
If an appraisal comes in lower than the buyer’s intended loan (purchase price minus all cash down), one of four things must happen:
- The seller reduces the purchase price.
- The buyer and seller split the difference and the price is reduced accordingly.
- The buyer comes up with more cash for a deposit.
- The purchase contract/escrow is cancelled (Yikes…we don’t want that!)
In a strong seller’s market, where inventory is low and demand is high, appraisals aren’t a huge issue. But in a strong buyer’s market, where the inventory is high and the number of qualified buyers is low, knowing the appraised value of a property prior to going into escrow can be very important. A seller certainly wouldn’t want their escrow to be canceled because they priced their home too high. In a strong buyer’s market, sellers must be very conscious of pricing just to get a qualified buyer!
Thankfully, the Big Island is still considered a strong seller’s market. Why? Because inventory continues to be limited while the pool of buyers, many with cash in hand, stays strong.
Please contact me for a complimentary analysis of your property’s list value and/or licensed appraisers!
