Market value and assessed value are two terms that are often used interchangeably in the real estate industry. However, they are not the same thing. Understanding the difference between these two values is important for homeowners, homebuyers, and anyone involved in the real estate market.

Market value is the price that a property would sell for in an open market, where both the buyer and seller are knowledgeable about the property and the transaction is not affected by any undue pressure. On the other hand, assessed value is the value placed on a property by a government tax assessor for the purpose of determining property taxes. While market value is determined by factors such as supply and demand, comparable homes, and lot size, assessed value is calculated based on a tax rate applied to the property’s appraised value.

Understanding the difference between market value and assessed value is crucial for homeowners when it comes to property taxes, refinancing, and home equity loans. Homebuyers and sellers also need to be aware of the difference between these two values when making decisions about home purchase or sale. By knowing the difference between market value and assessed value, homeowners and homebuyers can make informed decisions and avoid overvaluing or undervaluing their property.

Market Value vs. Assessed Value

When it comes to determining the value of a property, two terms that often come up are market value and assessed value. While both of these values are used to determine the worth of a property, they are calculated in different ways and serve different purposes. Here is a breakdown of the differences between market value and assessed value.

Market Value

Market value is the estimated amount that a property would sell for in the current real estate market. It is determined by looking at the prices of similar properties that have recently sold in the same area. Market value takes into account various factors such as location, size, condition, and amenities of a property.

Market value is usually determined by a professional appraiser or a real estate agent. It is essential to understand that market value is not always the same as the asking price of a property. The asking price may be higher or lower than the market value depending on various factors such as the seller’s motivation, the condition of the property, and the current state of the real estate market.

Assessed Value

Assessed value is the value assigned to a property by a government entity for taxation purposes. It is used to determine the amount of property tax that a property owner will pay. Assessed value is not always the same as market value as it is calculated differently.

Assessed value is usually determined by a local government assessor who takes into account various factors such as the property’s location, size, age, and condition. The assessor may also consider the current real estate market when determining the assessed value of a property.

It is important to note that assessed value is not always a reliable indicator of a property’s market value. This is because assessed value may not take into account the current market conditions, and it may not reflect the actual market value of a property.

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In conclusion, while market value and assessed value are both used to determine the value of a property, they are calculated differently and serve different purposes. When buying or selling a property, it is essential to understand both market value and assessed value to make informed decisions.

How Market Value is Determined

Market value is the estimated amount that a buyer would be willing to pay and a seller would be willing to accept for a property in an open and competitive real estate market. Several factors contribute to the determination of market value.

Location

Location is one of the most important factors affecting market value. Properties located in desirable areas with good schools, low crime rates, and easy access to amenities such as shopping centers, parks, and public transportation tend to have higher market values than those in less desirable locations.

Age

The age of a property can also affect its market value. In general, newer properties tend to have higher market values than older ones. However, properties that have been well-maintained and updated over the years can still command high market values.

Condition

The condition of a property is another important factor affecting market value. Properties that are in good condition and require little to no repairs or upgrades tend to have higher market values than those that are in poor condition.

Size

The size of a property is also an important factor affecting market value. Larger properties tend to have higher market values than smaller ones. However, the value per square foot of a property can also vary depending on other factors such as location, condition, and amenities.

Amenities

The amenities that a property offers can also affect its market value. Properties with desirable amenities such as swimming pools, fireplaces, and updated kitchens and bathrooms tend to have higher market values than those without these features.

Supply and Demand

The law of supply and demand also plays a role in determining market value. If there is high demand for properties in a particular area and limited supply, the market value of properties in that area is likely to increase. Conversely, if there is low demand and a surplus of properties, the market value is likely to decrease.

Comparable Properties

Finally, the market value of a property is often determined by comparing it to similar properties in the same area that have recently sold. These comparable properties should be similar in terms of location, age, condition, size, and amenities. By analyzing the sales prices of these comparable properties, appraisers can estimate the market value of the property in question.

In summary, market value is determined by a combination of factors including location, age, condition, size, amenities, supply and demand, and comparable properties. Understanding these factors can help buyers and sellers make informed decisions about real estate transactions.

How Assessed Value is Determined

The assessed value of a property is determined by the local tax assessor’s office. Here are some of the factors that go into determining assessed value:

Tax Assessor

The tax assessor is responsible for determining the assessed value of a property. They will typically take into account a variety of factors, including the condition of the property, the size of the property, and the location of the property.

Government

The government also plays a role in determining assessed value. The government may set guidelines or regulations that the tax assessor must follow when determining the assessed value of a property. For example, the government may require that the assessed value of a property be based on its fair market value.

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Jurisdiction

The jurisdiction in which the property is located also plays a role in determining assessed value. Different jurisdictions may have different rules and regulations regarding how assessed value is determined. For example, some jurisdictions may require that the assessed value of a property be based on its current use, while others may require that the assessed value be based on its potential use.

Tax Rate

The tax rate is another factor that can affect assessed value. The tax rate is the percentage of the assessed value that is used to calculate property taxes. A higher tax rate will result in a higher property tax bill, even if the assessed value of the property remains the same.

Reassessment

Finally, it’s important to note that assessed value is not set in stone. The tax assessor’s office may periodically reassess the value of a property, especially if there have been significant changes to the property or the surrounding area. Reassessment can result in a higher or lower assessed value, which can in turn affect the property tax bill.

In summary, assessed value is determined by a variety of factors, including the tax assessor, government regulations, jurisdictional rules, tax rates, and reassessment. It’s important to understand how assessed value is determined in order to better understand your property tax bill.

The Role of Appraisers

When it comes to determining the value of a property, appraisers play a crucial role. They are trained professionals who are licensed to provide an unbiased estimate of a property’s worth. The appraiser takes into account a variety of factors, such as the property’s location, condition, and size, as well as recent sales of similar properties in the area.

Professional Appraiser

A professional appraiser is an independent third party who is hired to determine the market value of a property. They are trained and licensed to provide an unbiased estimate of a property’s worth. The appraiser will typically inspect the property and take into account a variety of factors, such as the property’s location, condition, and size, as well as recent sales of similar properties in the area. They will then provide a written report that outlines their findings and explains how they arrived at their estimate.

Real Estate Agent

A real estate agent can provide a comparative market analysis (CMA) to estimate the market value of a property. However, it is important to note that a CMA is not the same as an appraisal. A CMA is an informal estimate of a property’s value based on recent sales of similar properties in the area. It is not a formal appraisal, and it is not conducted by a licensed appraiser.

Homeowner

A homeowner may have their own idea of what their property is worth. However, it is important to remember that the homeowner’s opinion of the property’s value may not be accurate. Homeowners may have an emotional attachment to their property, which can cloud their judgment when it comes to determining its value. It is always a good idea to consult with a professional appraiser or real estate agent to get an unbiased estimate of a property’s worth.

In conclusion, appraisers play a critical role in determining the market value of a property. They are trained professionals who are licensed to provide an unbiased estimate of a property’s worth. Homeowners and real estate agents can provide their own estimates of a property’s value, but it is important to remember that these estimates may not be accurate. It is always a good idea to consult with a professional appraiser to get an unbiased estimate of a property’s worth.

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Appealing Your Property Tax Assessment

Appealing Your Property Tax Assessment

If you believe that your property tax assessment is incorrect, you have the right to dispute or appeal it. Here’s what you need to know about disputing and appealing your property tax assessment.

Dispute

The first step to disputing your property tax assessment is to contact your local tax assessor’s office. They will provide you with the information you need to file a dispute. You will need to provide evidence that your property has been assessed incorrectly. This evidence could include:

  • Recent home sales in your area
  • A recent appraisal of your property
  • Evidence of damage or needed repairs
  • Incorrect property information on file with the assessor’s office

Once you have submitted your evidence, the assessor’s office will review it and make a determination. If they agree that your property has been assessed incorrectly, they will adjust your assessment accordingly.

Appeal

If you are not satisfied with the outcome of your dispute, you have the right to appeal your property tax assessment. The appeals process varies depending on your location, but typically involves a hearing with a local board of property tax appeals.

Before your hearing, you will need to gather evidence to support your case. This evidence could include:

  • Recent home sales in your area
  • A recent appraisal of your property
  • Evidence of damage or needed repairs
  • Incorrect property information on file with the assessor’s office
  • Evidence that your property is over-assessed compared to similar properties in your area

At your hearing, you will present your evidence and argue your case. The board will then make a determination and adjust your assessment if they agree that it is incorrect.

In some cases, you may need to hire a professional appraiser or attorney to help you with your dispute or appeal. This can be costly, so it’s important to weigh the potential savings against the cost of hiring a professional.

Remember, disputing or appealing your property tax assessment can be a lengthy and sometimes frustrating process. But if you believe that your assessment is incorrect, it’s important to take action to ensure that you’re not paying more than your fair share of property taxes.

Conclusion

In conclusion, while market value and assessed value are both important factors in determining the value of a property, they serve different purposes. Market value is the price that a property can be sold for on the open market, while assessed value is the value that a local government assigns to a property for tax purposes.

It is important to note that market value is not always equal to assessed value. In fact, assessed value is often lower than market value, as it is based on a percentage of the market value and takes into account factors such as depreciation and tax rates.

When buying or selling a property, it is important to consider both market value and assessed value, as they can impact the price that a property is bought or sold for. However, it is important to remember that assessed value is not necessarily an accurate representation of a property’s true value, as it is based on factors that may not reflect the property’s actual worth.

Overall, understanding the difference between market value and assessed value can help property owners make informed decisions when it comes to buying, selling, and managing their properties. By taking into account both market value and assessed value, property owners can ensure that they are getting a fair deal and that their properties are properly valued for tax purposes.

About the author 

Eric Lee

Eric, Co-Founder of REIInsiders, brings extensive real estate investing expertise and a finance background to drive growth and oversee marketing and business development efforts.

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