The appraisal: a value for the lender
The Consumer Financial Protection Bureau (CFPB) describes an appraisal as a written document that shows an opinion of how much a property is worth, describing what makes it valuable and how it compares with other properties nearby. The lender orders it and uses it to size the loan against the home's value, as the loan-to-value rule below shows, and the CFPB notes the lender may require you to pay for it. The standard Loan Estimate form says the same in its fine print, and adds that you may pay for an additional appraisal for your own use.
You have a right to see it. Under Regulation B, for a loan secured by a first lien on a home, the lender must give you a copy of all appraisals and other written valuations promptly upon completion or three business days before closing, whichever is earlier. It may not charge for the copy, only a reasonable fee for the appraisal itself. You can waive the timing and receive it at closing instead, but then you lose the days to check it.
The assessment: a value for the tax bill
The assessment is set by the local assessor, called the property appraiser in Florida, on a fixed date each year: January 1 in Florida, October 1 in Connecticut. It follows state rules that often keep it away from market value on purpose. Connecticut law requires towns to assess property at 70 percent of its value and to revalue at least every five years, so between revaluations the assessment reflects an older market. Florida assesses at just value, which is market value, but caps how fast a homestead's assessed value may rise and then resets it to just value after a sale. The tax itself is the assessed value, less any exemptions, times the local rate.
How the assessed value turns into a tax bill, with the assessment ratio and the mill rate, is worked through in how property tax is calculated.
Side by side
| Appraisal | Assessment | |
|---|---|---|
| Who sets it | An appraiser the lender orders | The local assessor or property appraiser |
| What it is for | Shows the lender what the collateral is worth | The base for the property tax bill |
| When | For a purchase or refinance loan | On a fixed date each year (Jan 1 in Florida, Oct 1 in Connecticut) |
| What value | An opinion of market value on the inspection date | Market value times the state ratio, sometimes capped or out of date |
| Who pays | Usually you, through the lender | Nothing; it is part of the tax process |
| What it changes | Loan-to-value, loan amount, PMI | Your tax bill and escrow payment |
| Your copy | Free copy required by federal rule | In the assessor's records; Florida appraisers post them online |
| If you disagree | Ask the lender for a reconsideration of value | Informal review, then a formal appeal |
One house, three numbers
A buyer agrees to pay $420,000 for a Connecticut house and plans 20 percent down, $84,000, for a loan of $336,000. The town last revalued the house at $350,000, so its assessment is $245,000, and at an illustrative 26 mills the yearly tax is $6,370. Then the lender's appraisal comes back at $400,000.
| Figure | Amount | Used for |
|---|---|---|
| Contract price | $420,000 | What the buyer agreed to pay |
| Appraised value | $400,000 | The loan |
| Assessed value | $245,000 | The tax bill (70% of $350,000) |
Fannie Mae's rules calculate the loan-to-value ratio on a purchase against the lower of the sales price or the current appraised value. The planned loan was 80 percent of the price, but against the appraisal it is 84 percent, which puts it over 80 percent; the CFPB says a conventional loan may require private mortgage insurance with less than 20 percent down; the guide what is PMI explains that cost. To stay at 80 percent the loan can be no more than $320,000, so the buyer needs $100,000 in cash instead of $84,000: the whole $20,000 gap comes out of pocket. The mortgage calculator shows what each version costs per month, and the home affordability calculator shows whether the extra cash still fits the budget.
The assessment plays no part in any of this. It matters for the tax line in the monthly payment, and it will move at the next revaluation, not because of the sale price.
When the appraisal comes in low
The CFPB calls an appraisal below the price strong evidence that the price was above the home's market value. Its suggested responses, plus the formal route lenders now have to offer:
- Get and read the report. Check the facts: square footage, room count, condition, and whether the comparable sales are really comparable.
- Negotiate the price. The CFPB says you can often use the lower appraised value to negotiate a reduction in the sales price.
- Ask for a reconsideration of value. Fannie Mae requires lenders to have a process for a borrower-initiated reconsideration of value. You may request one per appraisal, identify what is unsupported or inaccurate, and offer up to five additional comparable properties with an explanation. It must happen before the loan closes, and the lender must describe the process when it delivers the appraisal.
- Bring more cash to cover the gap, as in the example above.
- Walk away. If the seller will not move, the CFPB says you may want to cancel, and suggests an attorney's advice, since the purchase contract decides what cancelling costs.
Low appraisals are not rare. FHFA's appraisal data shows that in 2021, 15.2 percent of purchase appraisals nationally came in below the contract price, 26.7 percent at it and 58.1 percent above it.
On a refinance
Fannie Mae's loan-to-value rule for a refinance uses the current appraised value alone, since there is no sales price. For the same loan amount, a higher appraisal means a lower loan-to-value ratio and a lower one means a higher ratio. The refinance calculator shows the break-even month once you know the new rate and costs. The tax assessment again plays no part.
When the assessment looks too high
An assessment can be appealed to a public board; a lender's appraisal can be challenged only through the lender's reconsideration process. The appeal starts informally with the assessor's office and then goes to a local board by a fixed deadline. Florida's Department of Revenue suggests an informal conference with the property appraiser, lets owners represent themselves before the value adjustment board, and requires an exchange of evidence before the hearing. A recent appraisal of the same home is market evidence you can bring, which makes the copy you received before closing worth keeping.
Frequently asked questions
Why is my appraisal different from my tax assessment?
They answer different questions on different dates. The appraisal is an opinion of what the home is worth now, for a lender. The assessment is the value the tax office uses, which in many places is a fixed share of market value or is capped: Connecticut assesses at 70 percent of the value found at the last revaluation, which can be up to five years old, and Florida limits how fast a homestead's assessed value may rise. A big gap between the two is normal.
Can I use my appraisal to lower my property taxes?
It can serve as evidence. An assessment appeal is about the value the tax office put on your home, and a recent independent appraisal of the same property is one way to show a different value. Florida's Department of Revenue lets property owners represent themselves before the value adjustment board and present evidence; the Florida deadline is 25 days after the TRIM notice is mailed, so check your own notice early.
Do I get a copy of my appraisal?
Yes. For a first-lien mortgage on a home, Regulation B requires the lender to give you a copy of all appraisals and written valuations promptly upon completion or three business days before closing, whichever is earlier, and it may not charge you for the copy. It may charge a reasonable fee for the appraisal itself. You can waive the timing and take the copy at closing, which the CFPB suggests thinking about carefully.
What happens if the appraisal is lower than the price?
For a purchase, Fannie Mae's rules base the loan-to-value ratio on the lower of the sales price or the appraised value, so a low appraisal means more cash or a smaller price. The CFPB says you can often use the lower value to negotiate the price down, and if the seller refuses you may want to cancel, with an attorney's advice on any costs under your contract. You can also ask the lender for a reconsideration of value if the appraisal has errors or missed comparable sales.
How often do appraisals come in below the contract price?
FHFA's data on purchase appraisals shows that in 2021, 15.2 percent came in below the contract price, 26.7 percent equal to it and 58.1 percent above it, nationally.
Sources
- CFPB: What are appraisals and why do I need to look at them? (an opinion of how much a property is worth; the lender may require you to pay for it; copies are free; a reasonable fee for the appraisal itself)
- CFPB: Do I have the right to receive a copy of my home appraisal? (free copy for first-lien loans, no later than three days before closing)
- Regulation B, 12 CFR 1002.14 (copy promptly upon completion or three business days before consummation, whichever is earlier; waiver of timing; notice within three business days of application; no charge for copies, reasonable fee for the appraisal)
- CFPB: My appraisal is less than the sale price. What does that mean for me? (negotiate a lower price; consider cancelling; consult an attorney; possible costs under the contract)
- CFPB model Loan Estimate H-24(G), page 3 (the lender may order an appraisal and charge you; you get a copy even if the loan does not close; you may pay for an additional appraisal for your own use) (PDF)
- CFPB: What is private mortgage insurance? (may be required on a conventional loan with a down payment of less than 20 percent of the purchase price)
- Fannie Mae Selling Guide B2-1.2-01, Loan-to-Value Ratios (purchase: the lower of the sales price or the current appraised value; refinance: the current appraised value)
- Fannie Mae Selling Guide B4-1.3-12, Appraisal Quality Matters (lender policies for borrower-initiated reconsideration of value; one per appraisal; up to five additional comparables; not after closing; disclosure of the process when the appraisal is delivered)
- FHFA: Exploring Appraisal Bias Using UAD Aggregate Statistics (2021 purchase appraisals: 15.2 percent below, 26.7 percent equal to and 58.1 percent above the contract price)
- Connecticut General Statutes, chapter 203: section 12-62a (assessment at 70 percent of value, October 1 assessment date) and section 12-62 (revaluation at least every five years)
- Florida Department of Revenue: Property Tax Information for First-Time Florida Homebuyers (property appraisers assess as of January 1; just, assessed and taxable value; reassessment after a sale) (PDF)
- Florida Department of Revenue: Petitions to the Value Adjustment Board (informal conference with the property appraiser; who may represent you; evidence exchange) (PDF)
General information based on the sources above, not tax, legal or financial advice.