By Cory Nickerson, LRA Broker Associate
"What is my home worth?" This is by far the most popular question home owners will ask when when considering putting one's home on the market. That said, let's break down the process to help understand how to determine the difference between assessed, appraised and fair market values of a property and how they affect you as a home owner.
Assessed (Actual) Value - In Colorado real estate property value assessment is conducted county by county. The Property Assessors Office for Boulder County appraises every residential property value in the entire county every two years and determines what is termed "Actual Value". County appraisers use algorithms, neighborhood sales and apply the assessed rate, which is established by the State of Colorado, to determine the assessed value of your property. The assessment rate has been 7.96% since 2003, but will reduce to approximately 7.2% for 2016-2017 assessments.
The Gallagher Amendment, in place since 1982, regulates Colorado's assessment rate, which will decrease to approximately 7.2% this year to protect home owners from paying too much in property taxes. This rate is then multiplied by the county's appraised value of your property (not a lender's appraised value as I will discuss below) to provide the assessed value of your property. For example, if the county assessor appraises your home at $500,000, your assessed value will be $500,000 multiplied by 7.2% (for 2017) or $36,000. Your property taxes will be based on the value of $36,000, not $500,000. For more information about the historical assessment rate view the 2016 Colorado Assessed Values Manual found here.
It is important to note that the Property Assessors Office for Boulder County does not set taxes! Essentially what they do is establish the assessed value of your land and any improvements (e.g., single family home, garage, sheds, etc.), so that the Boulder County Treasurers Office can calculate and mail out your tax bills each year.
Appraised Value - This is the value that a trained, certified, independent professional real estate appraiser will report based on his or her inspection of your home, an evaluation of the neighborhood comparable sales ("comps") and an overall analysis of the market. Since this involves a visit to your home and maybe even personal interaction with the seller or the seller's agent it is a different process than that used by the county as I described above. Most lenders require an appraisal, which the home buyer has to pay for, before they will close on a home loan. While most cash buyers don't need an appraisal, such buyers are entitled to order one if they so desire.
A professionally appraised value of a property is usually based on the value of comparable sales looking back three to six months. Lenders will usually only approve a mortgage loan based on the appraised value of a property, so if the property does not appraise at the sales price or more, the buyer and sellers and their agents must negotiate how to pay for the difference should they want to continue with the transaction.
Fair Market Value (FMV) - Simply put, this is the price at which a buyer, acting of their own free will, would be willing to pay for your home. What agents try to do when they work with sellers to establish a price that will sell in the future. This is unlike either one of the appraisal processes I described above, which determine a value based on the past. Sellers agents have the daunting task of helping set a price to predict the future, or what buyers would be willing to pay.
Sometimes the FMV is not the offer price, since negotiations may occur during the course of the transaction. At the end of the day, assuming buyers or sellers are not desperate nor acting irrationally, the FMV is the final price negotiated for a home. Once the deal closes, this property sale turns into a comparable sale ("comp") to be used to help appraise the next similar listing in the neighborhood.
If you would like to see housing data for Boulder County, there are plenty of statistics to check out in such as "Days on Market", "Total Inventory" and "Newly Listed Homes". We track all these market statistics for Single Family Homes (SFH) for most of neighboring towns on a monthly basis, including Louisville, Erie, Lafayette and Superior. Check out Spring 2017 market summary here. At Louisville Realty Associates, we have the experience, energy and depth of knowledge to help you list your home for the best price. You can reach me anytime at firstname.lastname@example.org.