Different types of Value and How they are determined

How much a home is worth seems like it should be the same across the board, doesn’t it? I get a lot of questions about this. Value of Real Estate is determined for a variety of reasons and used for a variety of purposes beyond how much a Buyer should pay.

Assessed Value This is how your tax is calculated. In Orange County, California at the time this article is written the base tax rate is 1.0% That means if you have a home that is being assessed at 500,000 x 1% (tax rate) your annual tax bill will be $5,500 or $416.67/month in addition to your mortgage payment and any required insurance and/ or Mello Roos and other charges.

Appraised Value is an Appraisers Opinion of Value and used for your home loan. An Appraiser will (almost always) use a process called the Sales Comparison Approach. Its pretty straightforward, an Appraiser will look at similar homes to the Subject Property and come to an opinion of price based on what homes in the immediate area have sold for.

This valuation method has a fair amount of leeway and can change a lot if there aren’t good comps near by. Want more info on this? Contact me!

Finally, Purchase price is all you! We like to say that a home is worth what a Buyer is willing to pay. This can be affected by location of the home, quality of the neighborhood, condition of the home, etc. Literally anything can affect the amount that a specific home is worth to you. A home still needs to “appraise”

ASSESSED VALUE is determined by the county and considers a variety of factors. You can read about how the county determines assessed value HERE. This link takes you to the Orange County Tax Assessor Website.

APPRAISED VALUE takes into account recent closed sales in a method referred to as the Sales Comparison Approach. This is by far, the most common valuation method for Residential Real Estate. If a 3 bedroom 2 bath home sells in a given neighborhood, the Appraisal will compare the Subject Property with the Comparable Sales in the same neighborhood to decide what the market says the value of the Subject Property is. This can be a very subjective process. One Appraiser may give more value for a very good view of the ocean than another Appraiser. Even with that subjectivity, the Appraisers Opinion of Value is very highly regarded by the Lender. The lender generally will not lend on the property if the Appraisal doesn’t match or exceed the mutually agreed Purchase Price. 

PURCHASE PRICE is determined by the Buyer and Seller. This can be any number but if you are getting a loan the property must appraise. If it doesn’t, there are sometimes things you can do.

Need more info? Ready to get started? Want free Starbucks? Contact me!