When it comes to real estate, understanding the difference between assessed value and market value is crucial. These two values play distinct roles in determining the financial aspects of owning a home. While assessed value is used for calculating property taxes, market value reflects the potential selling price of a property in the current market.
In this guide, we delve into the disparities between assessed value and market value, shedding light on how each value is computed, why they are significant, and how they impact your financial decisions. Whether you are looking to purchase a home in Fort Worth, TX, or considering refinancing in Detroit, MI, understanding the nuances of assessed value and market value is essential in assessing your property’s worth.
Key differences between assessed value and market value
| Assessed Value | Market Value |
| Utilized by local governments for property tax calculations | Indicates the likely selling price of a property in the current market |
| Determined by local tax assessors | Influenced by market conditions, agents, and appraisers |
| Typically reassessed every 1-5 years | Fluctuates based on real estate market conditions |
| Calculated using an assessment ratio of the market value | Based on comparable home sales and buyer demand |
| Impacts property taxes | Impacts home sale price, refinancing, and home equity |
What is Assessed Value?
Assessed value is the value assigned to a property for tax purposes. Local authorities use this value to determine property taxes, which are not based on the market price of the property.
How is the Assessed Value Calculated?
Tax assessors evaluate properties periodically, considering factors such as market value, property features, local tax rates, and comparable home values in the neighborhood. Property taxes are calculated based on an assessment ratio of the estimated market value.
Key points about assessed value:
✔ Used solely for property tax calculations
✔ Generally lower than market value
✔ Subject to appeal if deemed excessive
Example of Calculating Assessed Value
To determine assessed value, the formula typically involves multiplying the market value by the assessment ratio. For instance, if a property has a market value of $300,000 with an 80% assessment ratio:
$300,000 x 0.80 = $240,000
The assessed value would be $240,000, upon which property taxes are based.
What is Market Value?
The market value of a property represents its potential selling price in the current real estate market. This value is influenced by buyer demand, economic factors, and recent comparable sales.
How is Market Value Determined?
Market value is determined by recent sales of similar properties, location, property condition, supply and demand, and economic conditions.
How to Determine Your Home’s Fair Market Value
Various methods, such as online valuation tools, comparable market analysis, and home appraisals, can help estimate your property’s fair market value accurately.
Key points about market value:
✔ Determines the potential selling price of a property
✔ Constantly fluctuates based on market conditions
✔ Typically higher than assessed value
Significance of the Disparity Between Assessed and Market Value
If you’re a homeowner: Property taxes are based on assessed value
- Your property taxes are determined by the assessed value, not the market value.
- Even with rising home prices, property taxes may not immediately increase due to periodic reassessments.
If you’re selling: Market value determines your sale price
- Buyers and agents focus on market value, not assessed value, when making offers.
- Your selling price is based on the market value and recent comparable sales.
If you’re refinancing or obtaining a home equity loan: Market value is crucial
- Lenders consider market value for refinance terms and home equity loans.
- A higher market value can increase your home equity and improve loan options.
If you’re appealing property taxes: Focus on assessed value
- Challenging the assessed value can lead to lower property taxes if deemed excessive.