A home’s assessed value and its market value can seem similar, in reality these two values are often quite different and have different uses.

What Is Assessed Value?

Assessed value is a value for a property that is determined by an entity, such as a local municipality, a county, or other governmental agency that is determining the value for the purpose of calculating property taxes.

The assessed value is usually based on factors like:

  • What are similar properties selling for?
  • Recent improvements made to the property being assessed.
  • Income derived from the property such as from renting out a room.
  • Current replacement cost of the property in the event of a disaster

The assessed value of the property is arrived at by the assessor. Any property tax exemptions that the owner may be eligible for are factored in and then the value is multiplied by the multipliers used by that municipality to arrive at the assessed value for the purpose of determining the applicable property taxes.

Typically, the assessed value is some percentage of the property’s fair market value.

Politics

Assessments can be tied to the political process in a municipality. The assessment formula can be revised to raise or lower valuations to meet a political agenda such as the need to increase or decrease property taxes.

In many areas the position of assessor is a political position. It may be an elected office, or the assessor may be a political appointee.

Disputing Assessed Value

Homeowners routinely will dispute their property tax bill. They are, in essence, disputing the property’s assessed value. They are requesting a review of their property’s assessed value in hopes of lowering their property tax bill. There are typically any number of attorneys in a major local area who specialize in this area.

What Is Market Value?

At its core, the market value of a property is what a buyer is willing to pay for it and the price that a seller is willing to accept. Determining a property’s market value for the purpose of listing it for sale, or for a buyer looking to make a fair offer, is a bit of a subjective process.

A number of factors go into determining a property’s market value:

  • How does the property look? This is known as curb appeal. Does the property offer a good initial visual impression when a prospective buyer drives up to it? What does the exterior of the home look like, are there any distinguishing features?
  • Internal characteristics of the home. The size, number of bedrooms, a finished basement, number of bathrooms and many other factors are considered here. This can also include things like the newness and quality of any appliances that might be included for the buyer. What is the age of the furnace and the central air conditioning unit if the home has one?
  • The sale price of comparable homes in the area that have recently sold will be a key factor. If this property is listed at $400,000, but there are no recent comps that have sold for more than $300,000 buyers might consider the price of this property to be high.
  • The supply of and demand for properties in the local market is key. When there is a glut of homes on the market, this will tend to depress prices. When there is a high demand, especially if combined with a normal or low supply of properties for sale, this will tend to drive up prices in the area.
  • Interest rates on mortgages may not impact the market price directly, but when interest rates are high it may be harder for buyers to qualify for a mortgage, and the monthly payments will certainly be higher for the same amount borrowed versus when rates are lower.
  • Location. The saying in real estate is that the most important factor for a property is location, location, location. People buy homes or other types of property in large part because of the location. Families want to live in an area with good schools. People want to be close to where they work, or to an area with amenities like shopping, restaurants and entertainment.

Appraisals

During the process of applying for a home mortgage, the lending institution will generally do an appraisal of the home’s value to determine if the proposed purchase price is reasonable in terms of the amount the buyer is looking to finance. Banks typically will not issue a mortgage for a home they deem to be overvalued in terms of the purchase price compared to an appraised market value.

Lenders want to be sure that the amount of the mortgage requested by the borrower does not represent a situation where they are over-borrowing. This can lead to a problem for the lender down the road should the borrower not be able to keep up their payments. If the loan was based on a home value that was overstated, then the lender may not be able to realize enough money from the home sale to cover the outstanding loan balance.

Online Home Valuation Services

Today there are any number of online sites that will assign a value to your home. There is absolutely nothing official about the price they may show, and these valuations should be used as information only. Additionally, if you were to compare the value of the same property at several of these sites, it's likely that you would see a range of values for the same property.

If you are selling a home, it's important to get the most realistic market valuation for your home possible. If you price the property too high, it's likely to sit on the market for a long time, if it sells at all. If you price it too low, you may be leaving money on the table.

As a buyer, knowing what a property is truly worth is crucial as well in terms of obtaining financing and ensuring that you don’t overpay compared to what the property is actually worth.