Homeownership is not just about buying a house and turning it into your dream home. There are property taxes that need to be paid each year and valuations you need to understand. When paying your property taxes, you can even challenge the tax imposed by your taxing district. However, you can only do this if you understand how these taxes are calculated.
The first step towards understanding your property valuation is to know the difference between the assessed value & the market value of your property. While you can contact experts like Bezit, who will help you calculate assessed value vs market value, as a property owner, you should still understand the difference between the two, so let’s get into it!
What is the Assessed Value of a home?
The assessed value of a home is set by the municipality or county. This is the value assigned to any property and is typically used for tax purposes. The assessed value of a home will be directly proportional to the tax levied on it, meaning that if the assessed value of a property is high, the tax levied will also be high, and vice versa.
The assessed value of a home can give you an idea of how much you may need to pay in property taxes.
How is the Assessed Value calculated?
As mentioned earlier, the assessed value of a property is established by the municipality or county. This is determined by the assessor based on a few factors:
- The amount that similar homes in the area are being valued at
- Valuations based on recent improvements made to the property
- How much it may cost to rebuild the property
- Income generated if any part of the property is being rented out
The assessor arrives at their property value after careful consideration using the criteria above. These values usually only change during reassessment.
Reassessments of your property’s value are dependent on the state and local laws of the area. For instance, local laws may require a reassessment every 3 years, or even every year.
What is the Market Value of a home?
The market value of a home is the price that the seller is ready to accept for the property. The market value of a property is also called “Fair Market Value”. This amount is determined based on market variations and other economic factors.
How is the Market Value calculated?
The market value of a property is calculated by the real estate agent who conducts comparative market analysis, or CMA. Apart from this, the following factors also play a role in setting a property’s market value:
- External aspects, including lot size, architectural style, and curb appeal
- Elements of the internal structure of the house, like room count and size, heating systems, construction quality, and the home's flow
- The sale prices of similar homes in your vicinity
- The location and its desirability, along with neighborhood amenities
Assessed Value vs. Market Value: Key Differences
The key difference between the assessed value and the market value of a property is that the assessed value of a property is usually lower than the market value.
This is because of two factors, firstly the assessment is not conducted regularly, and secondly, the assessed value is based on factors like location, size, and condition of the property, factors which are less likely to change over time.
However, there are exceptions; if the property is in bad condition and needs significant renovation, the assessed value of the property may be higher than the market value.
While the assessed value is used for tax purposes, the market value is how much the property would be sold on the open market.
The assessment rates of assessed values are determined by the county or the municipality. The market value, on the other hand, is determined by market information and other factors.
Can you calculate fair market value vs. assessed value by yourself?
If you want an idea of the valuation of a house, you can look at other properties in the area that are similar. Look at factors like:
- Location
- Lot size
- Architectural style
- Square footage
- Age
You can get a rough idea of the market value of a property in this way. You will have to take into account the differences in similar properties and make adjustments accordingly, but it should give you a good idea of your property’s market value.
However, to get the exact market value of a property, you should consult real estate experts like Bezit who will calculate it for you!
Did you know?
If two properties are exactly the same, you can adjust prices by increasing or decreasing the amount to figure out the market value. This is called the adjusted sales price.
In conclusion, knowing the assessed vs. market value of your property will give you a better idea of your property tax totals and the valuation of your property.