There are many important terms that can be confusing when buying and selling a home. One of the most common confusions is the difference between the assessment value and the market value. Being able to distinguish the two is important to know when buying or selling a home.
The assessment value of a home relates to how much the local government places property taxes on the home. This value is determined by county and town specific calculations to determine the percentage of your home value that can be taxed. There are various factors that help determine the assessment value of a property, such as the home's condition, size and land value to name a few. In some municipalities, the assessment value of a property may be based on calculations that include an estimate on market value or the last sale price.
Market value, on the other hand, is the dollar amount that the home is estimated to sell for in the current market. The market value of a home is calculated by looking at comparable local homes for sale, including the square footage, amenities, location, condition of the house, as well as local market conditions. The market value is an abstract amount—the home may sell for higher or lower than the determined market value, but it is generally used as a close estimate of how much the house is worth in the current real estate market. While market value fluctuates based on the comparable homes on the market, assessments have little correlation to the market value of the home and assessments often have no impact on the determined market value.
It's not often that assessed value and market value match exactly. This is important for buyers to know, as it is a common misconception that they should match, especially from buyers coming from out of the state or country. Typically in our area the assessed value will come in lower than a property's actual market value – sometimes quite a bit lower. However, on occasion assessments are higher than market value as well.
The assessment and market value of a home can be very confusing to understand, and if you have any questions about the difference when buying or selling a home, your real estate agent should be able to clear any confusion and pave the way to a sale!