Whether you are buying or selling a home, you’ll hear two values thrown around – the assessed value and the market value. While they are both values, they have two different meanings and uses. Confusing them could make your purchase or sale rather confusing.
Below we help you understand the meaning of both terms.
What is the Assessed Value?
Your county has an assessor or person in charge of assessing property values. The county uses this value to charge the homeowner property taxes.
The assessor uses a process similar to an appraiser. His job is to determine the value of the home based on:
- Comparable properties that sold recently in the area
- Value of improvements you made to the home since the last assessment
- Money you earn from owning the home (if you rent it out)
- The cost to rebuild the home should you face a total loss
Assessors take this value and multiply it times an assessment rate. This rate varies by jurisdiction. Every home within that jurisdiction will have the same rate, but different values. For example, if an assessment rate is 85%, the assessed value would equal 85% of the value the assessor came up with when valuing your home.
What is the Market Value?
The market value is the value a typical buyer would pay for your home in the given market. The market value can change often, depending on the state of the market.
A trained home appraiser will determine the home’s value by looking at:
- The home’s condition – The appraiser inspects the inside and outside of the home, looking at its condition, location, energy efficiency, and structure
- Measurements – The appraiser will measure the lot, size of the home, and the size of individual rooms
- Comparable sales – The appraiser will look for recent sales in the area of homes as closely related to your home as possible
- The area’s qualities – Does the area have good schools and a low crime rate? How close is the home located to the freeways, shopping district, and other amenities?
Realtors use the appraised value of a home to determine the home’s asking price. Lenders use the value to determine how much you can borrow to buy a home or refinance an existing loan. Lenders, sellers, and buyers make a lot of decisions based on the home’s market value.
What are the Differences?
The assessed value is important because it determines how much you pay in property taxes. You want this value as low as possible to keep your tax liability low.
The market value is important because it determines how much you can borrow to buy or refinance a home. If you are the seller, you want this value to be as high as possible so that you make as much as you can on the home. If you are the buyer, you want the value low enough so that you can afford the home, but high enough so that the lender will give you the loan you need.
Assessed value and market value aren’t interchangeable terms. For example, if you want to buy a home, you won’t look at the home’s assessed value. This value will be much lower than you would pay for the home since assessors take a percentage of the assessed value to determine your property taxes. While the lower assessed value helps keep your property taxes down, it’s not the ‘going rate’ on the market.
Just as you wouldn’t look at assessed value when buying a home, you won’t use the market value when determining your property taxes. If assessed correctly, your assessed value will be much lower than the market value. You’ll still pay the same property tax rate, but on a lower value, which helps keep your taxes lower.
If you are thinking of buying or selling a home, you need to know the home’s market value. If you want to know how much you must pay in property taxes or how the county assessed your taxes, you need to know the assessed value. Assessed values are public knowledge and easily found on your county treasurer’s website. You’ll need to ask a local realtor or appraiser for a home’s market value, though.