Lawnae Hunter, Windermere; The Key Nov. 2014

Picture this: You’re looking to purchase a home in Bend, your first home to be exact. You’re excited about all the possibilities. It’s a great location, great schools, walking distance to a grocery store. You’re excitement starts to grow as you are handed an appraisal report.

The appraisal talks about the condition of the home, the visible wear-and-tear, and at the bottom, it mentions how much that dream home of yours is worth. It’s right within your budget, so the signing is imminent.

At some point, you hear the term tax assessed value, and the appraisal number isn’t the same as the assessed number. The terms — appraisal and assessment — float around in your head and that excitement you had starts to be bombarded by confusion.

Rest assured, you are not the only one who gets confused. While these might seem to achieve the same purpose, in reality they are very different. As a real estate property owner or a prospective homeowner, it is important to understand the difference — and when to use which.

Real Estate Appraisal

An appraisal is an “opinion of value” on a specific date offered by a licensed appraiser. Appraisers are licensed by the state and approved for different types of appraisals. The role of the appraiser is to provide objective, impartial and unbiased opinion about the value of real property.

There are three traditional groups of methodologies for determining value: cost approach, sales comparison and income approach (income & commercial property only).

Appraisal reports are used for mortgage loans, settling estates and divorces, taxation and so on.

For residential home purchases, the sales comparison method is commonly used for evaluating recent sales of similar homes within close proximity. The appraiser may adjust final value, of similar sales for different features such as difference in lot size, pools and built in spas, conditions, etc. The buyer pays the appraisal fee, and the new mortgage lender will order the appraisal. The cost approach may also be incorporated into the report. The income appraisal approach is used for apartments or commercial income properties along with the cost and sales methods.

Assessed Value

The process of identifying and assigning a value to taxable property is called an assessment; the county assessor administers this process. In Deschutes County, Scot Langton is the assessor.

The assessed value of a property shall be the lower of the property’s real market value on the property’s maximum assessed value. These two values can be widely different based on market conditions, but a safeguard is built in the system to prevent the property owner from being assessed taxes on a value higher than the actual market value. It also protects the property owner should the assessed value exceed actual market value.

Measure 50 was passed by the Oregon Legislature in 1997. For existing property, the measure limits the annual increase in assessed value to 3 percent. This limitation made predicting future assessed value much simpler and replaced most tax levies with permanent tax rates. It transformed the system from one primarily based on levies to one primarily based on rates. Measure 50 also defined the real market value as the value the property would sell for on July 1 of the assessment year.

For newly constructed property, assessed value is calculated by multiplying the property’s real market value by the ratio of the assessed value of similar properties. For example, if the ratio of assessed to real market value for residential property in the county is 0.8, then the assessed value for a newly built property would be 80 percent of its real market value.

If a property owner disagrees with the assessed value, an appeal may be filed Dec. 31 of the tax year. The procedure for appeal is listed on the assessor’s page of the county website. Sold properties, however, are not re-assessed but continue to carry the established assessed value and are adjusted by a 3 percent increase annually.

Now that you know the difference, when should a real estate appraisal or tax assessment be used?

Bottom line, if you need to establish the price a property may sell, you will need an appraisal from a licensed appraiser. Current assessed values should not be used to calculate your market values for a sale.