Market Value vs Assessed Value: Which One Matters More?

The market value of a property is often a much more attractive number for buyers, while sellers are more interested in the market value. But what exactly do these terms mean, and how do they differ? This article aims to break down these concepts, their implications for both buyers and sellers, and why they are frequently at odds with each other.

Understanding Assessed Value

The assessed value of a property is the valuation placed on it by local government authorities, primarily for the purpose of taxation. This valuation is typically lower than the market value of the property.

The assessed value is usually done through an assessment process where a qualified assessor evaluates the property based on specific criteria. Such criteria can include the square footage, age of the property, and its condition. The assessed value is then used to determine the property tax that the owner has to pay.

Understanding Market Value

In contrast, the market value of a property is the price at which the property could likely be sold in the open market. This value reflects the current demand and supply dynamics of the housing market, as well as factors like the specific features of the property, its location, and the overall economic conditions.

Market value can fluctuate significantly based on different market conditions. For instance, during a real estate boom, the market value of a property might be much higher than its assessed value due to a high demand for homes in the neighborhood.

Why Assessed Value and Market Value Differ

The key difference between the two lies in their purpose and the criteria used to determine their values. The assessed value serves a specific legal purpose (taxation), whereas the market value serves a much broader and dynamic purpose related to the overall real estate market.

Furthermore, government assessors typically do not account for current market conditions like recent sales data, trends in the local economy, or even the features a property has that might increase its desirability. Thus, the assessed value can often be significantly lower than what the property could actually sell for in the market.

Implications for Buyers and Sellers

For buyers, the market value of a property is often seen as the fairest representation of its actual worth. They prefer to purchase a home at or close to its market value because it gives them a sense of its true market worth.

On the other hand, sellers who are seeking to maximize their profits naturally aim to sell their home at or near its market value. If a home is over-assessed, the seller might be reluctant to sell at that price and could potentially sell for less than the assessed value but more than the market value.

Strategies for Navigating the Two Types of Values

Given the differences between assessed and market value, homebuyers and sellers need to be aware of both and have strategies to navigate them.

For Buyers: Perform thorough research on the home's recent sales data and market trends. Hire a professional real estate agent who can provide insights into the market value of the property. If the assessed value seems too low, buyers should consider negotiating for a lower purchase price based on market value.

For Sellers: Work with a real estate expert to evaluate the home's market value. Consider hiring a professional home stager to enhance the property's marketability. If the assessed value is higher than the market value, sellers can seek assistance from government programs that may help them correct the assessment.

Conclusion

The assessed and market values of a property can differ significantly, and each has its own uses. For most real estate transactions, market value is the more relevant and telling figure, as it reflects the true value of the property in the current market. Understanding these differences can help buyers and sellers make informed decisions and negotiate more effectively in the real estate market.

Keywords: Assessed value, Market value, Property valuation