It is important for homeowners or those looking to buy or sell real property to understand the difference between a property’s assessment and an appraisal of the property. Unfortunately, the terms may sometimes be incorrectly interchanged; confusing the very real difference between a property’s assessed value and a property’s appraised value.
The purpose of an assessment is to place a value on real property for one very limited and specific purpose – taxation. The legislature and the courts of Pennsylvania have determined that all real property within each county of the Commonwealth is to be uniformly assessed for purposes of placing a value to be used as a basis for taxation. In York County, for example, this task is assigned to the York County Assessment Office which engages licensed assessors to value property at the actual value thereof – defined as the price a willing (but not obligated) purchaser would pay an owner, willing (but not obligated) to sell the property.
In theory, the assessed value is reflective of market value, but is primarily based upon information of public record and does not consider an individual property’s current condition, unique characteristics; physical plant or recent improvements. Moreover, the current assessments in York County are based on the market value of real estate as determined in the assessment process as of July 1, 2004. Although property values fluctuate and conditions change the effect of such factors may not be reflected in the assessed value of a property.
In effort to address the static nature of the assessment process and the lack of statewide assessment uniformity, the state legislature created the State Tax Equalization Board for the purpose of calculating and distributing state subsidies to school districts throughout the Commonwealth. Each year the Board establishes a common level ratio of assessed value to market value for each of the counties in the Commonwealth by calculating the arithmetic mean value based upon all sales of property within the county. The common level ratio is also used by the Pennsylvania Department of Revenue in calculating value for realty transfer tax purposes. Realty transfer tax for certain types of transactions (e.g. deeds reciting nominal consideration) is computed by applying the common level ratio factor (the reciprocal of the common level ratio) to the assessed value. These are examples of how the assessed value is utilized for very specific and limited purposes.
The purpose of an appraisal, on the other hand, is to determine the current fair market value of an individual property at a specific point in time for a variety of purposes – but most usually to determine an appropriate sales/purchase price and basis for lender financing. A qualified appraiser will physically examine the property, consider current market data including desirability of location; property characteristics; comparable sales; the condition of the property; and the need (or lack thereof) of major repairs. In fact, appraisals are typically the means of proof for property owners in challenging a property’s assessed value for purposes of taxation.
When one compares apples and oranges – my high school English teacher used to explain – one ends up with fruit salad. Confusing a property’s assessed value with its appraised value may yield a less desirable result.