Assessed Value vs. Market Value

A home’s assessed value and market value can be significantly different because the two figures serve different purposes. Assessed value is generally used by local governments when calculating property taxes, while market value estimates what a property could sell for under current market conditions. Homeowners may encounter both figures when budgeting for property taxes, buying or selling a home, or evaluating their equity.

A financial advisor can help you account for real estate, property taxes and other assets when developing a financial or investment strategy.

Assessed Value vs. Market Value at a Glance

Assessed value and market value both describe a home’s value, but they are calculated for different purposes and don’t necessarily match. While assessed value is generally used by local governments to help calculate property taxes, market value estimates what a property could sell for under current market conditions. Local assessment practices vary, so the relationship between the two values can differ depending on where the property is located.

	Assessed Value	Market Value
Primary purpose	Helps determine property taxes	Estimates what a property could sell for
Who determines or estimates it?	Local tax assessor or assessing authority	Can be estimated by appraisers, real estate professionals, buyers and sellers using market information
Factors considered	Property characteristics, local assessment rules and, depending on the jurisdiction, comparable sales or other valuation methods	Location, condition, property characteristics, comparable sales, supply and demand and broader market conditions
How often can it change?	Depends on the jurisdiction’s assessment and reassessment rules	Can change as property and market conditions change
Does it affect property taxes?	Yes. It generally plays a direct role in determining the taxable value of a property	Not directly, although market values may be considered as part of a jurisdiction’s assessment process
Does it determine a home’s selling price?	No	No. The final selling price ultimately depends on what a buyer and seller agree to
Is it used for mortgage lending?	Generally not as the primary property valuation	Lenders commonly obtain an appraisal or use another valuation method to estimate a property’s value
Can a homeowner challenge it?	Property owners can generally appeal an assessment according to local procedures	There is no government appeal process for market value itself, although a specific appraisal may sometimes be reconsidered or challenged
Does it have to equal the other value?	No	No

An assessed value that is higher or lower than a home’s estimated market value does not necessarily indicate that either figure is incorrect. Some jurisdictions assess property at a percentage of market value, while others have rules that can limit or otherwise affect changes in assessed or taxable value. Homeowners can check with their local assessor to understand how property values are determined for tax purposes in their area.

What Is Assessed Value?

The assessed value of a home is a valuation determined by a local government, typically by a tax assessor, for property tax calculations. It’s based on factors like the property’s size, location and the overall condition.

How Is Assessed Value Calculated?

The assessor considers elements like square footage, the number of bedrooms and bathrooms, any upgrades or improvements made and the overall state of the property. It may also take into account recent sales data from similar properties in the area to arrive at an accurate assessment.

How Often Is a Home’s Value Reassessed?

Some municipalities conduct reassessments annually, while others might do them every few years. Because it directly influences the amount of property tax a homeowner is required to pay, the local government will apply a specific tax rate, often referred to as a mill rate, to the assessed value to determine the annual property tax bill.

When Do Assessed Values Matter?

Property taxes collected based on assessed values fund essential public services like schools, road maintenance and emergency response. Understanding the assessed value of a home is key for homeowners who are planning long-term finances because they have the right to appeal the assessment, potentially leading to a lower tax bill.

What Is Market Value?

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The market value of a home is the estimated amount a property would sell for in the current real estate market, so it’s influenced by what buyers are willing to pay and what sellers are willing to accept. Real estate professionals, such as appraisers or real estate advisors, will review the home’s location, size, condition and any unique features before analyzing recent sales of comparable properties in the same area to determine market value.

What Determines Market Value?

Market value can fluctuate based on market conditions, economic factors and local demand. For example, in a seller’s market where demand exceeds supply, the market value of homes may increase, reflecting buyers’ willingness to pay more. Conversely, in a buyer’s market, where there are more homes for sale than buyers, market value might decrease as sellers compete to attract buyers.

Why Is Market Value Important?

Market value serves as a benchmark in real estate transactions, guiding negotiations and helping all parties involved make informed decisions. For sellers, it helps set a realistic asking price to attract potential buyers while maximizing returns. For buyers, knowing the market value ensures they pay a fair price based on current market conditions. Lenders also use it in their calculations to refinance a mortgage.

Key Differences Between Assessed Value and Market Value

Purpose: The assessed value is primarily used by local governments to calculate property taxes. In contrast, market value represents the price a home could reasonably fetch on the open market.
Determination process: Assessed value is determined by a tax assessor who may use formulas or models specific to the local jurisdiction. Market value is determined by real estate professionals using recent sales of comparable properties.
Influence of external factors: Assessed value is relatively stable, adjusted only at intervals based on municipal guidelines or re-assessment cycles. Market value is more volatile because it is directly influenced by the real estate market, economic conditions and buyer sentiment.
Impact on financial decisions: Assessed value mainly impacts the amount of property tax owed, while market value influences buying, selling and refinancing mortgage rates. Market value can also play a role in determining a home’s insurance needs and potential investment return.

How Do They Affect Each Other?

While assessed value and market value are different, they can influence each other indirectly. For example, if a neighborhood experiences significant appreciation in home prices, local tax assessors might reevaluate properties to align assessed values more closely with current market conditions.

Assessed value, on the other hand, doesn’t impact the market value of a home since negotiations are based on current market conditions rather than tax assessments. However, potential buyers might consider the property taxes part of the total cost of ownership, especially in high-tax areas.

Bottom Line

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Assessed value and market value measure a property’s value for different purposes. Assessed value is generally used to help determine property taxes and is calculated according to local assessment rules, while market value reflects an estimate of what a property could sell for under prevailing market conditions. The two numbers don’t have to match, and differences can result from assessment ratios, valuation dates, market changes and other local rules. Understanding which value applies to a particular financial decision can help homeowners better evaluate property taxes, a potential sale and other real estate considerations.

A financial advisor can help you consider how home equity, property taxes and real estate investments fit into your broader financial plan.

Tips for Real Estate Investments

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