According to the National Association of Realtors, parents gifting money to their children to help purchase a first home is a common experience. Gifting money is a type of down payment assistance that can help them realize their dreams of homeownership.
Know the difference: Appraised value versus assessed value
When shopping for a home, the price you see listed may not be the price you will pay. This is because the sale price of a home is determined via appraisals that consider location, comparable sales, the condition of the property, and any recent updates.
Appraised value and assessed value shouldn’t be confused, as they serve two different purposes in the housing market. Here is what you need to know:
The appraised value is the fair market value of the property
Getting a home appraised is an essential part of the purchasing process. An appraisal is done by an unbiased professional who will look at market data and public records before comparing them to similar properties in the area. Then they will issue a report detailing the property and its fair market value, or how much a property would sell for on the open market when certain conditions are met.
Using that report, lenders will approve or deny a loan, as they can’t issue a home loan if the appraised value is less than the loan amount.
The assessed value is the value of the property for tax purposes
When it comes to property taxes, governments need to know how much you owe. For this, an assessment is required. An assessor will evaluate your home through public records to determine details such as its size, age, location, and construction type.
The assessor then considers any tax exemptions and the property tax rate before submitting that information to your local government. If an assessment comes back lower than you expected, it doesn’t mean that your property is worth less. It just means that you will be paying lower property taxes.
While assessed home values aren’t always brought up when buying a home, you can ask why. For example, if a home’s assessed value is $100,000 less than what it is selling for, you can ask about it and possibly negotiate a lower sales price.
Get your property assessed and appraised by a professional
Always get your property assessed and appraised by a professional. Your loan officer will order the appraisal and as the borrower, you’ll have to pay a one-time, non-refundable fee. As always, double check your closing disclosure and loan estimate for discrepancies in fees and payments. If a number has changed, ask your lender to explain.