Tax Appraisals vs. Real Estate Appraisals

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Real estate appraisal is critcial to selling a home; tax appraisal is critical for funding public services.
Real estate appraisal is critcial to selling a home; tax appraisal is critical for funding public services. (Image: Comstock/Comstock/Getty Images)

Real estate appraisals and tax appraisals of real estate both involve estimating a monetary value for real property, often a house and its lot. The purposes of the two appraisals are quite different, however. A real estate appraisal helps an owner fix a price for a property, perhaps to prepare for a sale or refinancing, while tax appraisals help a taxing district, such as a county or school district, establish a tax rate for a property.

Real Estate Appraisal

According to the Appraisal Foundation, an appraisal is simply "the act or process of developing an opinion of value." In other words, it's a professional opinion regarding how much a home might sell for on the open market, done by an appraiser licensed by the state. An appraisal is not the same as a home inspection, which is a detailed examination of a property. An appraiser considers the overall condition of a property in his estimate but also considers other factors.

Appraisal Techniques

One of the most common real estate appraisal techniques is for the appraiser to compare the property to other comparable properties that have sold in the same area recently. Another way to appraise a home is by estimating how much it would cost to replace the property if it were completely destroyed. This technique is more commonly used for new homes for which sales comparisons might not be available.

Tax Appraisals

Because property taxes are based on the value of a property, a taxing body finds it necessary to determine a property's value, according to its own rules, for the purpose of calculating a tax. Estimating a sales price is not a goal. In the United States, county or municipal governments typically perform the appraisal under rules established by each state.

The Tax Assessor's Job

In most places, a public official called a tax assessor is responsible for determining the value of a property for the purposes of taxation. In most places, the assessor will try to determine the property's fair market value. That is, how much a reasonable and informed buyer would pay for the property. If it has been sold recently, the sales price is often taken to be at or close to fair market value. If the property has not been sold recently, a public assessor uses methods similar to that of a private appraiser -- especially data on comparable nearby sales -- to make a determination of value.

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