Whether you want to buy or sell a luxury home in the Denver area, understanding the difference between the actual market value and appraisal value of the home is imperative. Several factors go into determining these numbers, and the truth is that while appraisal and assessment values may affect the selling price, the selling price does not affect appraisal or assessment values.
Imagine that you found the house of your dreams in a quiet Denver neighborhood. The schools are amazing, there are plenty of nearby parks, and you are ready to make an offer. The sellers want $920,000, and one of your favorite internet sites values the home at $950,000. However, another couple who are also interested is ready to make an offer. Because you really want the house, you offer the seller the asking price of $920,000 and the house is yours. Later, the appraiser says your home is only worth $900,000. To make matters worse, according to tax records, the home is assessed at a mere $820,000. You obviously paid too much, but why?
What Are Market Value and Appraisal Value, Anyway?
To make things simple, know that market value is a term used to describe the price a seller can get for a home within a reasonable timeframe. On the other hand, the appraisal value is merely an estimation that the lender uses to determine its risk in providing a home loan. The amount that a buyer is willing to pay can have a tremendous impact on the going price for a home. Using the aforementioned example, even if a home’s appraisal value is $900,000, the market value could skyrocket if that home is in high demand.
What about Assessed Value?
One of the most confusing monetary values assigned to a home comes in the form of a tax assessment. In the example given here, the assessment value was more than $100,000 less than the price paid for the home. Ideally, one would think that assessed value and market value are the same thing. They are not, though. A tax assessor works a certain neighborhood, and he or she must determine the values of the properties in that neighborhood. The assessor is not required to adjust the assessment value based on market value, though. This is why neighborhoods have “equalization rates” to help adjust property taxes fairly across all properties in the area.
So What Does a Buyer Do?
In the grand scheme of things, there are a few things you should take away from this information. First, you will usually pay the market value for a luxury home in the Denver area, but appraisal and assessed values cannot reliably indicate market value. What might bother one buyer – such as an airport a mile away – may not bother another. For this reason, some people are naturally willing to pay a higher price for luxury homes than others, and it is the price that people are willing to pay that ultimately dictates the market price.
When you want to buy or sell a luxury home in the Denver area, it is important to have all of this information before you make a final decision. Ultimately, it is up to the buyer to determine whether the difference in asking price and appraised or assessed values is worth it to them.