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Assessed Value Vs. Market Value: Your Questions Answered

Sarah Sharkey5-minute read

May 19, 2023


Preparing to purchase a home can be an exciting time. After all, you’re setting up the next chapter of your life. But you’ll encounter a multitude of new terms throughout the process, and you’ll want to take the time to understand how it can affect your homeownership journey.

For example, understanding the difference between the assessed value vs. market value can help you ensure the numbers of a particular property add up. Let’s take a closer look at what you’ll need to know.

When Market Value Matters And How It Is Calculated

The market value of a home is often referred to as the fair market value. Whether you’re buying a house or selling a house, this is a critical number. Essentially, the market value determines how much a home will cost.

How Is A Fair Market Value Determined?

A standard formula does not define the fair market value of a home. As you seek to determine the fair market value, real estate comps and appraisals will play a role in setting this price. Typically, a rough estimate can be determined based on the square footage in relation to comparable properties in the area. Plus, a professional appraiser can provide a somewhat accurate estimate.

However, these numbers will only get you so far. Ultimately, the fair market value will be determined based on what a buyer is willing to pay for a property.

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When Tax Assessed Value Matters And How It Is Calculated

The assessed value serves a different purpose. Specifically, the assessed value is used to calculate property taxes.

As a buyer, the assessed value will give you an idea of what you can expect to pay in property taxes each year. Before you make an offer on any property, you should factor the expected annual property taxes into your budget. If you aren’t able to afford the taxes on a property based on its assessed value, then it’s important to know that before you dive in headfirst.

Of course, it’s likely that the property taxes on the home will not make or break your decision. But it’s still a good idea to consider all the costs before settling into homeownership.

The property tax rate will vary widely based on your location. For example, according to Wallet Hub’s data, the average U.S. homeowner will pay $2,375 per year in property taxes. But New Jersey residents will pay a median of $8,362 in property taxes annually. The assessed value of the home will determine how much your property tax bill will be each year.

How Do Assessors Arrive At A Value?

The assessed value of a home can have a major impact on your budget. So, how does an assessor arrive at this important number?

Typically, an assessor will look at several factors, including the following:

  • Comparable homes. Other home values in the area will affect the assessed value of a home.
  • Recent improvements. A kitchen renovation, bathroom remodel or major addition will likely increase the value of a home.
  • Rebuilding costs. The estimated cost of rebuilding a house will affect the assessed property value.

In most cases, property value assessments will be conducted using mass appraisal techniques with the help of automated computer programs. After all, assessors often have many properties to consider.

However, assessors will often use the computerized assessment as a starting point. The assessor may adjust the determined assessed value based on the specifics of the home in question.

For example, let’s say an assessor is determining the assessed value of a single-family home with three bedrooms and two bathrooms. Comparable homes in the area are selling for anywhere between $190,000-$215,000. However, the property in question recently underwent a major renovation to update the kitchen and bathrooms. With that, the assessor will likely determine that the property has a higher-than-average value.

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Tax Assessed Value Vs. Market Value FAQs

You now know the basic definitions of the assessed value vs. market value. But it’s understandable if you still have a few questions about the distinction. Let’s take a minute to answer some of the most common questions about assessed and market value and the relationship between them.

Is An Assessment The Same As An Appraisal?

An assessment is not the same thing as a traditional property appraisal. However, it is a specific type of appraisal that is can only be used for tax purposes.

A lender will not accept a tax assessment in place of a conventional property appraisal. If you’re buying or refinancing a home, you’ll need to order a property appraisal that’s unique from the tax assessment.

Lenders will require a conventional appraisal because of the methodology differences. With a conventional property appraisal, the lender will receive a better approximation of the fair market value. With that, it can determine how much a borrower can receive to close on the property.

Do Market Value And Assessed Value Influence Each Other?

When considering the assessed value vs. market value, it’s important to realize that these two numbers are often connected. Throughout the home sale process, it’s not uncommon for realtors to point out the assessed value to market a home. On the flip side, assessors will often take the market value into consideration.

For example, let’s consider a home that has recently undergone a kitchen renovation. With that the market value would likely increase to reflect the upgrades. Not only that, but the assessed value will likely increase as well based on increased market value.

How Often Do Assessed Values Change?

The assessed value of a property can change frequently. However, the frequency will depend on the state and local laws that affect the property.

For example, a reassessment of a property’s value may only be required once every 5 years or as often as once per year. With that, if an assessed value seems to be too high, it may not be the deterrent that it first appears to be, if assessments happen often. An upcoming reassessment could alter the assessed value to a more appropriate level.

Can Taxpayers Dispute Assessed Values?

As a taxpayer, you can absolutely dispute the assessed value. In fact, you might be surprised to learn that taxpayers frequently exercise their option to dispute the assessed value of their home.

If you want to dispute the assessed value of your home, then consider reaching out to your local tax collectors’ office. They should be able to provide directions for your request.

The Bottom Line: For Home Buyers, Market Value Matters Most

The assessed value of a home is critical for tax purposes. But ultimately, the fair market value of a home will be determined by a variety of other factors.

As you consider home options, realize that the assessed value and tax rate can change regularly. And with those changes, you’ll be required to pay a variable tax bill each year.

A more significant factor that will permanently affect the monthly expenses surrounding your mortgage is the mortgage rate. With that, getting the best possible mortgage rate will continue to benefit you for the full life of your home loan.

Ready to explore your mortgage options? Talk to a mortgage expert today about available options.

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Sarah Sharkey

Sarah Sharkey is a personal finance writer who enjoys diving into the details to help readers make savvy financial decisions. She’s covered mortgages, money management, insurance, budgeting, and more. She lives in Florida with her husband and dog. When she's not writing, she's outside exploring the coast. You can connect with her on LinkedIn.