Assessed Value vs. Market Value: What's the Difference?
Home prices aren't set in stone; instead, their value can change depending on a few key factors—that's what makes buying and selling real estate so fun! (Or frustrating, depending on your perspective.)
As a buyer or seller, you will likely hear two "prices" thrown about: assessed value versus market value. So what's the difference?
While assessed value and market value may seem similar, these numbers can be different typically, the value as assessed is lower and they're used in different ways. So let's clear up any confusion, so you can use these terms to your advantage.
What is market value?
Elias Gebeily says the technical definition of market value is "the most probable price that a given property will bring in an open market transaction." Or, in plain English, “It’s the price that a buyer is willing to pay for a home, and that a seller is willing to accept.”
We as Real estate agents are trained to pinpoint a home's value in the real estate market, which is done by looking at a variety of characteristics, including the following:
External characteristics: Curb appeal, exterior condition of the home, lot size, home style, availability of public utilities, neighborhood.
Internal characteristics: Size and number of rooms, construction and appliance quality and condition, heating systems, decoration, amenities and energy efficiency.
Comps, or comparable: What similar homes in the same area have sold for recently.
Supply and demand: The number of buyers and the number of sellers in your area.
Location: How desirable is the neighborhood
A home's market value is often a good starting point for determining all kinds of concerns that home buyers might have.
Gebeily Real-Estate agents use this value to help sellers come up with a fair asking price for their home. And, since buyers shouldn't just trust what sellers say their place is worth, their own agents can also determine the home's approximate value and come up with a different price that they think their clients should offer.
No number is right or wrong; the ultimate deciding force is what price a buyer and seller determine they are willing to shake hands on to close the deal.
What is assessed value?
When trying to understand the assessment value of a property, you must know who is doing the assessing and why the property is being assessed.
To arrive at a value Gebeily Real-Estate agents looks at what similar properties are selling for, the value of any recent improvements, any income you may be making from, say, renting out a room in the property, and other factors—like the replacement cost of the property.
In the end, Gebeily Real-Estate agents comes up with an assessment value of a home and deducts any tax exemptions for which you qualify. Then, that number is multiplied by an “assessment rate,” also known as "assessment ratio," a uniform percentage that each tax jurisdiction sets that is typically 80% to 90%, to arrive at the taxable value of your property.
The higher your home's assessed value, the more you'll pay in tax. You can check with your local tax assessor for a more exact tax date for your home.
What assessed and market values mean to you
While a home's value in the market can rise and fall precipitously, based on local conditions, assessed values are typically not as sensitive to fluctuations.
Don't be upset as a property owner if your assessment is calculated at a lower amount than you'd figured. It doesn't mean your property value is less.
Home buyers and sellers, on the other hand, look more to marketplace value than at property tax data.
However, assessed value can come up when you buy or sell a home, because this number, is public knowledge contained in property records. So, rising assessed values bode well when home sellers try to justify their sales price to a buyer: “Hey, the assessed value is $310,000, and I’m only asking $320,000.”
Likewise, buyers can use assessed value to justify a lower price: "Hey, the assessed value is $260,000, and you're asking for $300,000. What gives?"
But the thing to remember with values both market and assessed is that at the end of the day, the price of a home is the amount for which a seller is willing to sell, and a buyer is ready to buy. The only number that matters is the price a buyer and a seller agree on.