In August 2023, U.S. home prices were up 2.9% year on year, selling for a median price of $420,284. Here the market value is $420,284, whereas the the tax-assessed value would be an average of 80% of the market value at $336,227.2.
Assessed value vs market value, although they are similar, serve distinct purposes when it comes to real estate. Assessments drive property taxes, while market value affects buying and selling prices.
👉 How do they differ?
- Valuation: Assessed value usually averages at around 85% of the fair market market value.
- Property Tax Impact: Assessed value directly affects property taxes, while market value impacts buying and selling prices.
- Assessment Frequency: Assessed value is often reassessed periodically by local tax authorities, while market value fluctuates in real time.
- Applicability: Assessed value is mainly used for taxation purposes, while market value is crucial for real estate transactions and investments.
- Influenced by: Assessed value considers standardized criteria, while market value is influenced by location, property condition, and demand.
What Is Assessed Value?
The assessed value functions as the property’s tax assessment and is decided by local authorities. It is calculated by multiplying the property’s fair market value by the assessment rate, a percentage set by the local government.
Assessed home value determines property taxes for local services and initiatives. Being that it’s crucial to understand that it directly affects your tax and financial planning.
When Does It Matter?
The assessed value matters to homeowners primarily for property taxes. That is it decides how much you’ll owe in property taxes each year. If your property’s assessed value goes up, your tax bill increases as well.
The assessed value is a vital part of governments to fund public services and infrastructure. Property taxes are defined by assessed home values and are used to fund schools, roads, safety, and also community services.
How to Calculate the Assessed Value of a Property?
Local tax assessors typically define the assessed value by an assessment ratio, i.e. a fraction of the property’s market value. The ratio varies by location and is often around 80% or 90%.
Assessed value can be calculated when the assessment ratio is multiplied by the property’s market value. For example, if your home’s market value is $200,000, and the assessment ratio is 90%, the home assessment value would be $180,000.
Local exemptions, like age, disability, veteran status, or functional deductions, like those for solar panels, lower tax assessed home value. You can find this information on the government websites or also contact the tax assessor’s office.
What Is Fair Market Value (FMV)?
Fair market value (FMV) is the estimated selling price of a property in an open and competitive real estate market. It takes into consideration current economic situations such as unemployment, inflation, interest rates, or a recession.
Location, property condition, comparable sales (comps), and all-around supply and demand in the real estate market also affect market value.
When Does It Matter?
Market value is crucial for you when you buy or sell a home. It sets prices, guides fair offers for buyers, and competitive listing prices for sellers. It also influences property equity and your current financial decisions.
When property values go up, the government can charge higher property taxes. Since the assessed value is tied to market value, the tax load is spread equally and property taxes are fair for everyone.
How to Determine the Fair Market Value?
Research recent sales of nearby properties with similar features, like size, layout, age, and condition. Comps from recent sales also help establish a value baseline. It considers the sale price in addition to the time on the market for market trends.
Moreover, you need to factor in your property’s condition and location, renovations, and closeness to amenities, schools, and transportation. Considering these factors and consulting experts also helps calculate your fair market value.
Calculate the FMV by Square Footage (sq/ft)
Fair Market Value Estimator
Assessed Value vs Market Value
| 🏡 | Assessed Value | Market Value |
|---|---|---|
| Purpose | Used for tax assessment | Reflects property’s worth |
| Determined by | Local tax authorities | Competitive real estate market analysis |
| Impact | Determines property tax | Guides buyer/seller prices |
| Objective | Standardized for taxation | Subject to market dynamics |
| Simple Formula | FMV * Assessment Rate | sq/ft of Home * Price Per sq/ft |
How to Challenge Your Home’s Value
If your property tax bill is unreasonably high you can challenge your home’s value.
- Research and Preparation: Find the assessed value on your tax statement or the assessor’s website, then gather supporting evidence to prove a miscalculation.
- Contact the Assessor’s Office: Contact your local tax assessor’s office to learn about the appeal process and get the required forms and guidelines.
- Review Assessment Details: Review your property assessment from the assessor’s office. Also, check for errors in size, condition, or key factors that affect the value.
- Gather Supporting Documents: Documents include proper appraisals, property photos, home improvement records, and local property sales data.
- File an Appeal: Complete and submit the assessor’s appeal form by the deadline. Chiefly, include gathered documents and explain why you think the value is wrong.
- Attend a Hearing (If Required): In some places, hearings may be needed for your appeal. If so, be ready to present your case concisely with evidence and reasons to challenge the value.
- Assessor’s Review: The assessor will review your appeal, and consider the evidence presented and any additional information requested.
- Decision and Notification: You will receive an appeal decision, and if the value changes, your tax bill will be adjusted accordingly. But, if your appeal is denied, you can follow local rules to escalate it to a higher authority or court.
- Follow-up: Keep an eye on your property tax bill to confirm the correct assessed value. If required, continue the appeals process until a good solution is achieved.
How to Use Assessed Value vs Market Value to Benefit You?
Leverage Assessed Value: Ensure it is accurate but challenge it if it is too high to lower property taxes. Watch out for any possible increases in the assessed value and plan your budget effectively.
Leverage Market Value: Maximize property benefits by pricing right when selling and making advised offers when buying. As an investor, it guides purchases and shows options. Stay informed by tracking local market trends for strategic real estate decisions.
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Frequently Asked Questions
What is the difference between market value and government value?
The key distinction between tax assessment vs market value lies in this: Market value reflects a property's selling price, while assessed value , also known as government value, directly influences property taxes.
Do market value and assessed value influence each other?
Tax value vs market value influence each other directly. Changes in the market value of a property can lead to adjustments in the assessed value by local tax authorities during reassessment periods.
What does assessed value mean on property taxes?
Assessed value on property taxes is the value assigned to your property by local tax authorities. It's used to calculate the property taxes you owe to fund local services and infrastructure.
What are the tax implications of selling a house below market value?
Selling below market value may impact capital gains and gift taxes based on circumstances and local laws. It's advisable to consult a tax professional for personalized guidance.
How much above tax assessment is a house worth?
The tax assessment vs market value of a house can vary significantly, as market value typically ranges from 10%-30% or more above the assessed value.
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