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Assessed Value vs. Market Value: What’s the Difference?

October 24 2018
by Leisl Bailey

Real estate going over home's assessed value with client.Many people who are buying or selling their home for the first time confuse the terms fair market value, assessed value, and appraised value. We’re here to shed a bit of light on the subject and give you a clear picture of what one will get you the best price for your house.

Assessed Value vs. Appraised Value

While these terms seem very similar, they are actually very different. Here’s a few crucial differences that you should know when buying or selling your home.

Assessed Value

Assessed value is determined by a county official known as an appraiser. The appraiser will gather information about your land value, similar homes in the area, and any updates made to the property. They are essentially trying to figure out how much your property would be worth to replace if, for some reason, something were to happen to it.

Once they have that number, they will multiply it by a percentage determined by the county. While this percentage usually lies between 80% and 90%, the percentage could be significantly lower. The assessor then takes that number and multiplies that by a percentage to figure out your taxes.

So, if the assessor determined that your three-bedroom, two-bath bungalow in Seattle is worth $350,000, they would then multiply that by the required percentage (say 80%) and get the number $280,000. That would be the assessed value. They would then figure out your property tax based on that percentage—not the actual value they determined.

Appraised Value

The appraised value (aka true market value) is determined by a licensed home appraiser, usually during a home sale or refinance. The appraiser is a third-party individual and decides what your home would reasonably sell for if you were to default on your mortgage.

The appraised value is a culmination of many things. Here’s what your typical appraiser will look at:

  • Updates to the home
  • Property value
  • Comparable homes
  • Market conditions
  • Curb appeal (and the curb appeal of your neighbors’ homes)
  • Proximity to eyesores, loud noises (i.e. trains or highways), sights, and smells
  • Proximity to schools, transportation, and parks
  • Any income the property makes

Once the appraiser determines a value for your home, they’ll take it to the bank. The appraised value is the maximum amount the bank will lend the seller for the property. Occasionally, the appraised value can be contested, but it is usually set in stone.

Market Value

Market value, on the other hand, is the sales price that a seller will pay and the buyer will let the home go for. As you can imagine, this number can change quite a bit.

Your real estate agent will usually determine the market value (or home value) of the property by taking a few things into account, like:

  • Price of similar homes
  • Supply and demand of the market
  • Updates and renovations
  • School systems
  • Crime rate
  • Market conditions

They’ll use all of this to determine market temperature and set a price that the house can reasonably sell for in that market.

The market value fluctuates based on the economy and how fast other real estate listings are selling for in the city and county.

It is important to keep in mind, however, that just because the market supports the price doesn’t mean the house will appraise for that value. The bank may appraise the house for much lower or higher than the market value, which would mean the buyer and seller would then need to compromise.

Selling Your House with Assessed, Appraised, and Market Values

Each of these numbers play a helpful part in selling your house.

People often ask real estate agents if you can you sell your house for more than the assessed value. The truth is that while the real estate agent may use the assessment to help them determine a sale price, all it does it provide a number that taxes are based on.

In short, the answer to that question is: You can absolutely sell your house for more than the assessed value. But you’ll probably want to sell your house for quite a bit more.

The market value of the house is the number your real estate agent will price your home at during the sale. Ultimately, the market value will be the number the house sells for—whether that is above or below the price set.

The appraisal value of the house is the benchmark that your market value hinges on. While you can get a pre-sale appraisal, you will be obligated to disclose that value with the seller. Beyond that, the appraisal value can change from appraiser to appraiser.

Although the appraisal is meant to be objective, each appraiser has a different process that can yield different results. Ultimately, the only appraised value that will matter is the one completed after an offer is accepted. If your house appraises for your asking price, then you are good to go!

Buying a House with Assessed, Appraised, and Market Values

When buying a house, these three numbers are also very helpful.

Many buyers compare the assessed value with the asking price when deciding what to offer. Although this strategy seems wise, the two numbers aren’t related all that much. The only thing the assessed value will tell you is how much you’ll pay in property tax.

The numbers you will want to look at more when considering what to offer is the market value of similar homes in the area compared to the asking price of the home you want to buy.

The market value of other homes will give you a rough estimate of what they appraised for as well. Both of those numbers will help you understand where you should place your offer.

Whether you’re buying or selling your house, the appraised value and market value are the numbers to focus on. Those numbers will be the big players in the real estate transaction and help you determine how to price the house and what to offer to make a great sale.

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