Home Assessed Value vs. Market Value

Two key terms often come up in real estate: assessed value and market value. While both are important in determining a property’s worth, they serve different purposes and are calculated differently. Assessed values are used to calculate property taxes, and market values are used to determine the price of a property. In real estate, the higher your home’s assessed value, the more you’ll pay in taxes. Whereas market values help sellers price their homes competitively to attract potential buyers and ensure buyers pay a fair price based on market conditions. In this guide, we’ll break down the distinctions, how they are calculated, and why they matter in real estate transactions.

The differences between assessed value and market value

A home’s assessed value primarily influences property taxes, while market value reflects what a home would sell for in the open market. Here are the key differences between assessed value and market value:

Assessed value

The assessed value of a home is the amount assigned by a local tax authority to determine property taxes. This value varies across the U.S. depending on local regulations. Homeowners should pay attention to assessed values when reviewing property tax bills. If you believe your assessed value is too high, you may have the option to appeal it with your local tax authority.

• Impacts the amount of property tax a homeowner must pay
• Determined by a local tax assessor
• Based on the market value and current assessment rate
• Assessments are done every one to five years
• Adjust periodically based on municipal rules or reassessment cycles

Market value

The market value (or fair market value) of a home is the estimated price it would sell for under current market conditions. This valuation is based on actual sales of homes similar in size, location, condition and features. You can look up your home’s Zestimate as a starting point to estimate the value.

• Influences buying and selling decisions, refinancing options, home insurance and investment potential
• Determined by real estate professionals
• Based on recent comparable home sales
• Market valuations are typically done either when an appraiser requests one or every 1-3 years, although the frequency can vary depending on market fluctuations and location. 
• Fluctuates with real estate market trends, economic conditions and buyer demand

Is market value higher than assessed value?

Sometimes, the assessed value is the same as the home's market value, while in other cases, counties apply an assessment ratio to determine the tax assessed value, often making it lower than market value. 

For instance, if your county assesses homes at 100% of market value, and your home has a market value of $150,000, the assessed value will also be $150,000. However, if your county applies an assessment ratio of 70%, the tax-assessed value for a $150,000 home would be $105,000.

A home’s market assessed value with an effective date of January 1 may have been determined using sales data from September 30 of the previous year. Because historical sales are used, assessed values often lag behind current market values.

How is a home’s assessed value calculated?

Tax assessors determine assessed values using different methods, which may include:

Cost approach: Estimating the cost to rebuild the home from scratch.

Income approach: Used for rental properties to assess value based on income potential.

Sales comparison approach: Comparing similar properties recently sold.

What determines market value? 

Several factors can impact a home’s market value, including location, the size or condition of the home, comparable homes in the area, as well as supply and demand. 

Location: The desirability of a home's location plays a major role in determining its market value. Proximity to quality schools, public transportation, shopping centers, and amenities can significantly increase a home's worth. Similarly, homes in safer neighborhoods with low crime rates often command higher prices.

Size and condition: The overall size of the home, including square footage and the number of bedrooms and bathrooms, impacts market value. Additionally, the condition of the property matters, homes that have been well-maintained or recently renovated typically sell for more than those needing major repairs.

Recent sales of comparable homes: Real estate professionals will do a comparative market analysis (CMA) for comparable sales (or "comps") to estimate a home’s market value. By analyzing recent sales of similar properties in the area, they gauge what buyers are willing to pay for homes of a similar size, age, and condition.

Supply and demand: If there are more buyers than available homes, prices rise due to high demand. Conversely, if there are more homes than buyers, prices drop as sellers compete for limited demand.

How market value influences assessed value 

While the assessed value and market value of a home are different, they can indirectly influence each other. If home prices in a neighborhood rise significantly, local tax assessors may reevaluate properties to align assessed values with market trends. However, the assessed value does not impact market value, since buyers base their offers on current real estate conditions rather than tax assessments. That said, potential buyers might consider property taxes as part of the total cost of ownership, especially in areas with high tax rates.

Why is market value important?

Homeowners looking to sell their property need to understand market value to set a competitive and realistic asking price. Overpricing can lead to a stagnant listing, while selling below market value may result in leaving money on the table.

When refinancing a home, lenders use market value to determine how much they are willing to loan. A higher market value can allow homeowners to borrow more or secure better loan terms.

By keeping an eye on market value current homeowners can make informed decisions about whether to hold onto real estate while buyers can gauge if it’s the right time to pull the trigger.

What do these values mean for you?

Understanding the difference between assessed value and market value is key to making the right home-buying or selling decision. While the assessed value determines property taxes, market value is crucial for pricing, refinancing, and investment decisions. By staying informed about these valuations, you can make smarter financial choices in the housing market.