What is the difference between Assessed Value and Market Value?

Whether you are in the market looking to buy or sell a property, there’s a good chance you have stumbled upon the terms ‘assessed value’ and ‘market value.’ For any first-timers in the market, these terms can be quite confusing. As a matter of fact, many even assume they mean the same. Well, this post will differentiate these two terms. Here is everything you need to know about assessed value vs market value.

Assessed Value vs Market Value: What You Need to Know

Your home’s value

The value of your property is part of the overall picture. It plays a huge part in your net worth and where you base your annual property tax. However, when looking at the value of your property, you may see varying figures. Why is that?

This is because your house is valued in different ways, and for different reasons.

Why is assessed value of your home higher than market value

Assessed Value

The assessed value is the percentage of the appraised value which is used to determine how much tax you need to pay for the property. Basically, this is used for tax purposes. While you want your property to increase in value over time, in this case, having a lower assessed value is actually a good thing – it means lower taxes. Thus, the assessed value of your home is lower than the market value.

Depending on where your property is situated and the state laws, the municipal or county tax assessor evaluates your property using several factors. Basically, this is how they calculate your home’s assessed value:

  • Recent improvements – renovations or remodeling of the kitchen and/or bathroom, other major additions that increase the value of the property
  • Comparable homes – the value of other properties in the area that affects the value of your property
  • Rebuilding cost – estimated cost for building the house should it get destroyed

Property value assessments are usually conducted through mass appraisal methods, using an algorithm of computer programs. Assessors use the computerized assessment as the starting point and adjust the numbers based on the specifics of the property.

Let’s say for example, a regular 3 bedroom, 2 bath single-family home is valued at around $190,000-$215,000. If your property has undergone major renovations or remodeling in the bathroom and/or kitchen, your house will have a higher-than-average value.

The assessor will then subtract the property’s value with the tax exemptions you qualified for. From there, they will multiply it by a fixed percentage set by the tax jurisdiction in your area. They call this the “assessment ratio” or “assessment rate.” This is the taxable value of your home, also known as your local property tax. They do this annually, and this information is public record.

Market Value

Market value is the value of your property based on the current real estate market. This is used by buyers, sellers, and lenders to evaluate the right selling price of the property based on the present market conditions. This is the value that assessors attempt to come up with before applying the assessment rate.

Here are two easy ways to remember the meaning of market value:

  • How much would buyers spend for the particular property
  • How much would sellers accept for the particular property

Lenders usually hire professional home appraisers to assess the market value of the property. This is called fair market value and is often used for mortgage applicants and homeowners who are looking to refinance their mortgage loans.

Anyone can also get an appraisal on their own by hiring the services of a certified real estate agent. The agent will use comparative market analysis to come up with the fair market value of the property, using different factors, such as:

  • Current overall condition of the property – from exterior to the interior of the house
  • Curb appeal – the general aesthetic appeal of the property from the outside, including its surroundings
  •  Size – lot size, square footage, number of bedrooms and bathrooms
  • Amenities – extra features that add value to the property, such as a wooden deck, pool, major appliances, energy-saving fixtures, etc.
  • Comparable properties – the prices of properties in the surrounding area that were recently sold, especially those with similar features
  • Location – location of the property in relation to access to major roads, proximity to schools, shopping malls, etc.
  •  Buyer’s market or seller’s market – the supply and demand of real estate properties on the market.

It is important to note that there is no standard formula for calculating the fair market value of a property. It is mostly based on the expectation of what the property would sell for during the time frame the value is calculated. It is also determined by what potential buyers are willing to pay for the property. Subsequently, it is highly influenced by the state of the economy and the current real estate market.

understanding the difference between assessed value and market value of home

What if you don’t agree with your home’s value?

Both the assessed value and market value of your home can have a huge impact on your finances. And there will be times when you may need it to be at a certain range, whether you are looking to sell it, refinance your mortgage, or save on your taxes. Either way, you have plenty of options to contest the valuation of your property.

Here are some tips you can do to change the valuation of your property:

  • Research – if you know a property in your neighborhood similar to yours that was sold for more than the value of your property, make sure to mention it to the appraiser.
  • Get a second opinion – if your initial appraiser is unwilling to change their mind, find a different one for a second opinion. It’s not guaranteed that they will have a favorable valuation, but it’s good to have an option.
  • Contest your property tax bill – if you feel you are paying higher property taxes than you should be, you can always contest it. You will have to pay a small filing fee and may even need to hire a lawyer to help you through the process.

For assessed value, reach out to your local assessor’s office with your property’s valuation information and discuss your issue. You can apply for a reassessment of your property. This of course varies widely between states. You can start by checking your local assessor’s office website for more information.

For the market value, whether you are a homeowner or a homebuyer, you may request to re-appraise your property. Maybe you feel there is information the appraiser missed on the first appraisal, such as a finished basement, etc. Transforming a basement into a functional bedroom can add square footage to your property, which can definitely improve its value. You can ask for the appraiser to take a second look without an extra charge or look for a different appraiser to reevaluate your home. If it is the lender who issued the appraisal, then there’s not much you can do to change it. 


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