As a buyer or seller, you’ll hear these two terms throughout the transaction process more than once, and with assessed value generally different than market value, knowing what they are will clear up confusion. One has little to do with the other, so here is what you need to know:
Property taxes are determined by the assessed value of a home. The assessor, who is determining the value, reviews the condition of the home, it’s surroundings, comparable properties, the value of recent home improvements, rental income, and the cost of replacing the property in case of something catastrophic like a fire. The value that is assessed by those factors is then multiplied by an assessment rate- typically around 80%- which is set by the tax jurisdiction in which the property is located. The end number is the assessed value.
For example, if the assessor comes up with a value of $300,000 and it’s multiplied by an 80% assessment rate, the assessed value is $240,000.
Assessed values aren’t regularly re-assessed, so properties can have assessed values that are low, high, and right on point with other homes in the area. If home owners feel that their value is incorrectly assessed, it’s recommended that they first compare their value to those of similar homes in the neighborhood. If the values are different, the local treasury office should be consulted in order to dispute the value.
The market value is the selling price of the property. This is determined essentially by what a buyer is willing to pay for it and what a seller is willing to take for it, but recent sale prices of comparable properties in the area are initially used to determine the market value. Assessed value does not determine the listing price or market value of a home.
For example, going back to the assessed value of $240,000 on a home valued by the assessor at $300,000, the property could have a market value of $350,000 or more depending on comps, the economy, and the real estate market. That’s a difference of $110,000 between assessed value and market value.
There isn’t any one correct number for the market value, as the current real estate market is a key factor along with what the buyer and seller are willing to agree upon. Market value is also what lenders look at when considering an application from a potential buyer.
Knowing both of these values when considering a home will give homebuyers a strong assessment of the home’s overall value. They’ll be able to understand the property taxes they’ll have to pay as whether or not they can afford the home. Contact one of our agents today if you’re interested in learning more about the value of a home on the market!
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