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7 min read May 29, 2023

Assessed Value vs Market Value: Understanding the Difference

Are you a home seller confused about your home’s value or a buyer trying to figure out a property’s worth? You need to know the concept of assessed value vs. market value. Read on to find out more about it.

Assessed Value vs Market Value: Defining the Concepts

What Does Assessed Value Mean?

Assessed value is the value assigned to a property by a government entity. The local tax assessor’s office usually calculates it to determine the real estate taxes.

Their assessment is based on various factors such as the property’s size, location, construction quality, and other relevant features. They usually perform assessments at regular intervals.

The assessed value may not always reflect the current market conditions or the actual selling price of the property.

What Does Market Value Mean?

Market value is the estimated price that a property would sell for in the open market under normal conditions. It represents the amount a buyer is willing to pay and a seller is willing to accept for the property.

Market value takes into account factors such as the property’s location, size, and condition. It also includes an analysis of comparable sales in the area and current market trends.

Real estate appraisers often determine market value by conducting a thorough analysis of the property and the surrounding market.

When Does Tax Assessed Value Matter and How Is It Calculated?

Tax assessed value matters mainly for the purpose of calculating property taxes. The tax assessors’ offices use it to determine the amount of property tax that a property owner owes. Higher assessed values generally result in higher taxes.

It is also important when a property owner makes an appeal against the tax assessment. They can present evidence, such as recent comparable sales data or evidence of property damage, to support their appeal.

Some jurisdictions give tax exemptions or relief programs based on assessed values. For example, certain properties, such as those owned by nonprofits or veterans, may qualify for exemptions or reduced tax rates.

How Is the Tax Assessed Value Calculated?

The specific calculation method for tax assessed value can vary between jurisdictions. Some of the common methods used by assessors to estimate the value of a property include:

  • Sales Comparison Approach: It involves comparing the property to recently sold properties in the area. Assessors analyze the similarities and differences in size, condition, location, and amenities to estimate the property’s value.
  • Cost Approach: This approach estimates the property’s value based on the cost of rebuilding or replacing the property. It takes into account factors such as construction costs, depreciation, and land value.
  • Income Approach: Tax assessors use this approach for income-generating properties. It estimates the property’s value based on the income it can generate. It considers rental rates, occupancy rates, and operating expenses.

When Does Market Value Matter and How Is It Calculated?

Market value matters when you are buying or selling a property. It helps you determine a fair asking price if you’re selling. In case you are buying, it helps in evaluating whether the asking price is reasonable.

Insurance companies often use market value to determine the coverage and premiums for property insurance. They consider this value to estimate the cost of replacing or repairing the property in case of damage or loss.

Professionals calculate property taxes by state according to the assessed value in some jurisdictions. While in others, they may be based on the market value.

Understanding the market value helps property owners assess the fairness of their tax assessments. They can appeal if they believe the assessed value is significantly higher than the market value.

Market value is essential when planning an estate, as it helps determine the value of assets for inheritance purposes. It enables estate planners to distribute assets fairly and determine any applicable estate taxes.

How Is the Fair Market Value Calculated?

Real estate professionals consider various factors to arrive at an estimated price of a property. This is a figure that a willing buyer and seller would agree upon in an open and unrestricted market.

Some key considerations and methods used by professionals to determine fair market value are as follows:

  • Comparative Market Analysis (CMA): This approach involves analyzing sale prices and characteristics of recently sold properties in the same area. Through comparison, real estate professionals can estimate a property’s value.
  • Appraisal Method: Licensed appraisers conduct appraisals or comprehensive evaluations to calculate the property value. They consider the property’s size, location, and condition. They also check amenities and comparable sales data.
  • Income Approach: Professionals use this approach for income-generating rental properties or commercial buildings. It analyzes a property’s income and compares it to similar properties in the area to get a fair value.
  • Replacement Cost Approach: This approach is used for unique or specialized properties. It determines the cost to replace the property with a similar one. Real estate agents consider construction costs, materials, and labor to estimate the market value.
  • Market Trends and Conditions: Factors like the current state of the real estate market, interest rates, and economic conditions determine a property’s market value. These factors can influence property values and buyer/seller behavior.
  • Professional Expertise: Real estate professionals use their expertise and knowledge of the local market to assess market value. Their experience in analyzing market data and knowledge of neighborhoods gives an accurate estimate.

Assessed Value vs Market Value FAQs

Do Lenders Consider Assessed Value or Market Value For Mortgage Purposes?

Lenders typically consider the market value of a property for mortgage purposes. When determining loan amounts and terms, lenders often require a professional appraisal containing an estimate of the property’s market value.

They consider the market value a more accurate reflection of the property’s worth in the open market. It helps lenders assess the risk associated with the loan.

Can Market Value and Assessed Value Influence Each Other?

Market value and assessed value can influence each other to some extent. However, they are not directly tied to each other. Here are a few ways in which they can have an indirect influence:

  • Market Conditions: Supply and demand dynamics, buyer preferences, and economic factors can impact the market and assessed values. Market fluctuations can indirectly affect the assessed value of a house.
  • Assessment Practices: Assessors consider market data and trends. If there is an upward or downward trend in property values in an area, assessors adjust their assessments accordingly. However, assessed values are not equal to the market values.
  • Tax Appeals: Property owners who believe their assessed value is not reflective of the market value may appeal. Successful appeals can lead to adjustments in the home value assessment, bringing it closer to the market value.
  • Sales Data: The market value of recently sold properties in the area is important for both assessors and appraisers. Assessors may consider recent sales data during assessments. Appraisers use it as a basis for determining market value.

Is an Assessment the Same As an Appraisal?

No, an assessment is not the same as an appraisal. They serve different purposes and are conducted by different entities even though both terms are related to property valuation.

The tax assessor’s office conducts periodic assessments for determining the value of a property and the associated property tax. The process may involve an analysis of property data, and factors like size, location, and condition.

A licensed and certified appraiser, on the other hand, conducts an appraisal. They typically conduct the appraisal when a person buys or sells a property, refinances a mortgage, or needs it for other financial or legal purposes.

Appraisers consider factors like the property’s condition, location, comparable sales, and market trends to estimate the market value. An appraisal is typically more detailed than a tax assessment.

When You Buy a House Are the Taxes Reassessed?

The tax assessor’s office typically reassesses property taxes when you buy a house. Some areas may reassess properties immediately upon a change in ownership. Others may reassess on an annual basis or at different intervals.

You can check with the local tax assessor’s office to understand the specific reassessment process and timelines in your area.

Assessed Value vs Market Value: The Bottom Line

For home buyers and sellers, market value matters most. It determines the final sale price of a property.

However, existing and new owners should be aware of their property’s assessed value because it determines the property tax.


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