When reviewing your property’s value, it’s important to understand the distinction between its market value versus assessed value. Here’s an overview of how they differ:
A property’s market value is its worth on the current open real estate market. Market value is the realistic selling price a property would achieve if offered today with reasonable exposure and motivated buyers and sellers.
Market values fluctuate frequently based on supply and demand. Values are very localised – identical properties on the same street can have different market values based on lot attributes, condition, renovations etc. Recent comparable sales are the best evidence of prevailing market value.
The assessed value is a property’s value as determined by the local tax assessor’s office for purposes of levying annual property taxes. Assessed values are based on comparable sales and market data, but often don’t reflect current values as accurately as current market prices.
Assessed values are usually lower than true market values. Most jurisdictions only reassess properties every 3-5 years, so assessed values may lag well behind shifting market conditions. Some states limit maximum annual increases in assessed value.
While market values vary property by property, assessed values generally aim to be uniform across neighbourhoods. Assessed values are also not as sensitive to property condition and upgrades as market valuations.
In summary, key differences between market value and assessed value include:
- Market value is based on real-time sales while assessed value relies on periodic mass appraisals.
- Market values differ property to property while assessed values aim for consistency.
- Market values fully reflect renovations and conditions while assessed values are less sensitive.
- Market values change frequently while assessed values stay fixed between reassessment cycles.
Understanding these core differences is important for homeowners and investors when evaluating a property’s current real worth versus its tax valuation. Relying solely on assessed value can result in setting inaccurate asking prices or borrowing against equity without up-to-date market valuations.