Assessment – Appraisal – Asking Price – How to Value Cambridge Real Estate

It’s often easy to get confused about how Cambridge real estate is valued – assessment, appraisal, and asking price – what’s the difference and what do these terms and numbers mean?   Assessment vs appraisal – asking price or market value – what’s it all about?

The Assessment

The assessment is the value placed on the home by the City’s assessors.  Your property tax bill is based on your assessment.  This leads to an odd dynamic – as a Cambridge homeowner you want your assessment to be as low as possible in order to pay less in taxes.  But as a homeseller or a buyer of Cambridge real estate you usually feel better if the assessment is higher.  For buyers, that’s often because they’re confusing the assessment with the appraised value or market value – which are often very different.

The City of Cambridge uses a very convoluted method to determine appraisals which I won’t attempt to describe here.  I once watched a televised City Council meeting during which the City Assessor tried to explain to the City Councilors how Cambridge assessments are calculated.  It was a looooong presentation that made me feel a lot better about not being able to summarize the methodology in a sentence or two. 

The assessment often varies widely from the market value of a Cambridge property and usually that should not be a matter of concern.  For some time a Cambridge house that was priced closed to its assessment was the rare exception.  Then the City reassessed properties and in many cases the new assessments were far higher than the property’s value on the real estate market.  There doesn’t appear to be a discernible relationship between current assessments and current real estate values. 

While assessments can sometimes be of interest when comparing a number of  properties in on area, in general the assessment shouldn’t be the number you focus on when you’re looking at Cambridge real estate. 

The Asking Price

The asking price or market price for Cambridge real estate should be based on recent sales activity for comparable properties.  When a real estate agent works with a seller to put a property on the market for sale, the agent prepares a comparative market analysis to determine the market value of the home.  Sometimes there haven’t been comparable homes listed for sale recently.  The realtor will use his or her knowledge of the marketplace to determine a suggested value for the property.  Ultimately, the seller, with advice from the agent, decides on an asking price.  The response from buyers will determine whether that is the “right price” or if the home’s value in the marketplace is lower or higher.

The Appraisal

There’s one more number or value that needs to be determined before the sale is closed.  After a buyer has an accepted offer on a property and has applied for a mortgage, the lender will have an appraisal done on the home.  The appraiser will compare the property to similar properties that have sold recently – usually within the last six months.  The appraisal will be submitted to the lender and as the buyer you’ll usually be able to get a copy of the appraisal by your closing date. 

In short:

 Assessment = City’s value for property tax purposes

Appraisal = Value for bank for lending purposes

Asking price = Seller’s price that buyers will decide is either too high, too low, or just right

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Elizabeth Bolton is a Cambridge real estate agent at Coldwell Banker on Huron Avenue.  Contact Liz if you have more questions about buying or selling real estate in Cambridge Massachusetts or nearby.

Categories: Buyer Info

This entry was posted on Sunday, June 21st, 2009 at 6:03 pm and is filed under Buyer Info. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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