When it comes to real estate, one of the most important things to understand is the value of a property. Understanding the value of a property isn’t always a simple process as a consumer. Despite the many scenarios in homeownership, there are two primary ways to understand a property’s worth – the assessed value and the market value.
While the two terms may sound similar, they refer to very different things. The assessed value of a home is what will be considered for calculating property taxes. However, when considering the purchase of a home, selling your current home, or planning for renovations, you are probably going to be focused on the market value, sometimes referred to as fair market value.
Along with advice from a loyal real estate buyer agent, understanding the value of your home when selling or knowing the true value of a home you’re buying will help you determine how you proceed in the transaction process. In other words, homebuyers need to understand assessed value vs market value.
What Is the Assessed Value of a Property?
The assessed value, or taxable value, is the value of a property as determined by a local government for the purpose of calculating property taxes. The assessed value is used to determine how much the property owner will owe in property taxes for the year.
Assessed values are typically determined by a local assessor’s office. The assessor’s office will conduct an assessment of the property, taking into account various factors such as the property’s size, location, and condition. The assessed value is then calculated by applying a predetermined percentage (known as the assessment rate) to the assessed value. This rate varies depending on the location and the type of property.
The assessed value is generally lower than the fair market value of a property because it does not review current market conditions. The assessed value is determined based on the property’s physical condition and other factors that are unlikely to change over time.
How Is Assessed Value Calculated?
The process of calculating the assessed value of a property varies greatly depending on the location. In some areas, the assessed value is based on a percentage of the market value of the property. In other areas, the assessed value is determined by a formula that considers various factors such as the property’s size, location, and condition.
In general, to calculate the assessed value of a property, the assessor’s office will typically consider the following factors:
Location
The property’s location may be an important factor in determining its assessed value. Properties located in areas with higher property values will generally have a higher assessed value.
Size
The size of the property is an important factor. Larger properties will generally have a higher assessed value.
Condition
The condition of the property may also be considered. Properties that are in better condition will generally have a higher assessed value.
Comparable Sales
In some cases, the assessor’s office may also look at recent sales of comparable properties in the area to determine the assessed value of a property.
Property Improvements
If the property has undergone any significant improvements, such as the addition of a new room or a renovation, this may also be considered when calculating the assessed value.
What Is a Special Assessment Tax?
A special assessment is a tax levied on homes in a particular area in addition to normal property taxes. How such a tax is levied will vary greater depending on the state. A local real estate buyer agent might have information about any current or potential special assessment taxes. The extra tax is used for special projects related to the improvement of the area. The tax is levied on a geographic area and the amount will be based on the assessed value of a property. A home with a higher assessed value will pay a higher special assessment tax. A special assessment tax can be levied on all types of properties, but it is different from an HOA fee in a planned community.
The special assessment tax will be used for general improvements such as:
- Water and sewer lines
- Streets, roads and sidewalks
- Infrastructure improvements
- Street lighting
- Parking facilities
- Building construction projects
- Public safety projects
- Recreational projects, such as trails, parks, sporting facilities and more
What Is the Market Value or Appraised Value?
The fair market value of a home, not to be confused with the appraised value, is the amount that a property would sell for on the open market. This estimation evaluates current market conditions, including supply and demand, interest rates, and other economic factors.
This knowledge helps you determine if you’re selling your property at a fair price or if the home, you’re purchasing is a good deal. A real estate buyer agent, particularly an exclusive buyer agent, market knowledge will also help you make this determination.
How Is the Market Value Calculated?
To find the fair market value of a property, a homebuyer’s real estate buyer agent will create a comparative market analysis, commonly referred to in the real estate industry as a CMA. . In addition, most mortgage lenders will require an appraisal before they approve a buyer for a loan, so it’s something you should be prepared for when proceeding in a real estate transaction. While a prospective homebuyers buyer agent and the appraiser will try to determine the home’s market value, the CMA and the appraisal are different parts of the home-buying process.
The market value of a property fluctuates over time as market conditions change. Market value is typically determined by considering various factors such as the property’s location, size, condition, and comparable sales in the area.
Market value is important for both buyers and sellers. For homebuyers, market value can help determine whether a property is a good investment. For sellers, knowing the market value of their property can help them determine the asking price for their home.
What are the Differences Between Assessed Value and Market Value?
The key difference between assessed value and market value is that assessed value is used for property tax purposes. In contrast, market value is used to determine the price that a property would sell for on the open market.
The assessed value is typically, but not always, lower than the market value because it does not examine current market conditions. The assessed value is based on factors that might include the size, location, and condition of the property, which are unlikely to change over time.
In some cases, the assessed value may be lower than the market value, while in other cases, it may be higher. For example, in a booming real estate market property prices are high, so the market value of a property may be much higher than its assessed value. Similarly, if a property is in poor condition or needs significant renovations, its market value may be lower than its assessed value.
The market value, on the other hand, is the actual value of the home in the current real estate market. It’s based on factors like the condition of the home, the location, and the state of the real estate market – all of which can fluctuate much more than property taxes. The market value can be influenced by factors like interest rates, supply and demand, and the condition of the economy.
Market value can also change based on factors such as renovations, upgrades, or changes in the neighborhood. Market value is often used by consumers when buying or selling a property. It provides an idea of what the property is worth in the current market.
In some cases, discrepancies between assessed value and market value can cause confusion and frustration for homeowners; however, it’s important to remember that the two values serve different purposes and are used in different contexts.
Check Your Knowledge Regarding Assessed Value vs Market Value
Assessed value and market value are both essential for determining the worth of a property, but they differ in their approach and purpose. The assessed value is used to calculate property taxes, and it’s based on a set of guidelines that determine the value of the property. Market value, on the other hand, is based on the current real estate market and is used by consumers when buying or selling a property.
It’s important for homebuyers to understand the difference between assessed value and market value, as this can impact property taxes and ability to sell a property in the future. It’s also important to remember that these values are not fixed and may fluctuate over time.
As a homeowner, it’s essential to keep track of these values and stay informed about the current real estate market to make informed decisions about your property.