The Difference between Assessed and Market value

When deciding how much to sell a property for, home sellers simply can’t allow guesswork and subjective feelings to dictate what they should put their house on the market for.

To establish an accurate and realistic asking price, real estate agents typically do a comparative market analysis, taking into account the property and its features, as well as its vicinity to schools and amenities, and the price that comparable properties in the city or suburb end up selling for, amongst a range of other things.

One other way to get an idea of what a given property is worth is to look at the assessed value of the home, which is used to determine how much tax will be levied on it.

Although home valuations (also called home appraisals) and home assessments are similar in many respects, they do differ in terms of their purpose and of the methods used to calculate the value of a property.

This article will examine these differences for people looking to sell their property, and for others who are scouring the market for a home to buy.  

What is market value?

Investopedia defines “fair market value”, or FMV, as “the price that an asset would sell for on the open market”. According to the same source, the fair market value of an asset like a property can be determined when certain conditions are met:

• Prospective buyers and sellers possess reasonable knowledge of the asset in question.
• Prospective buyers and sellers are behaving in their own interests.
• Prospective buyers and sellers are not unduly being pressured to trade.
• Prospective buyers and sellers have a reasonable period of time to complete the transaction.

When homebuyers and sellers adhere to the guidelines above, it can be assumed that the established fair market value of the property is an accurate assessment of the property’s worth.

The market value of a property is also sometimes called its appraised value. Put simply, the market value of a property refers to the amount of money the buyer and seller agree to exchange the property for.

When a qualified and experienced real estate agent comes aboard to help a seller put their property up for sale, they will recommend an asking price for the property, based on a number of important factors.

• The internal characteristics of the property: This may refer to the size of the property, the number of rooms in the house, the energy efficiency (or lack thereof) of the property as a whole, and the quality and condition of the home’s construction and the appliances installed within it.

• The external characteristics of the property: This may refer to the condition of the house’s exterior, the style of the home, the property’s general kerb appeal, and the property’s access to amenities.

• The location of the property: Where the property is located is key to determining an asking price. Is the property near schools, shopping centres and other amenities? Is the neighbourhood a desirable one?

• Properties in the area that are comparable to the property being sold: Another aspect involving the neighbourhood is the price that comparable properties, or comps, are selling for. Comps will typically be similar to the property that is being sold in a number of respects, among them, the property’s size, location and condition.

• Supply and demand within the neighbourhood or city: Of course, the state of the housing market at any given stage will also have an effect on the amount a property might fetch. Things like whether the current market favours buyers or sellers also comes into play here.  

Once the property has been put on the market, prospective homebuyers and their real estate agents will assess the property using the same metrics above, and come up with their own estimation of what a fair price for the property would be.

Ultimately, the market value of a property is established once the buyer has said what they are willing to pay for the property, and the seller has expressed that they are willing to accept said price.

What is assessed value?

The assessed value of a property is different from its market value in the sense that it is used for tax purposes, and does not necessarily determine what a home will sell for.

An assessor determines the assessed value of a property by looking at a number of factors, among others:

• Any improvements, repairs or renovations that have been undertaken on the property recently.
• The price that comparable properties are selling for.
• The income that a homeowner gets from renting out the property as a whole, or renting out rooms in the house.
• The potential replacement cost of the property, should it be destroyed, for example, in a fire or flood.

The assessor uses the value they come up with to establish how much tax will ultimately be paid on a property. This is done after the assessor has deducted tax exemptions and multiplied the amount they get with the assessment rate or assessment ratio. A higher assessed value means that homeowners are likely to pay more in tax.

Property assessments are usually conducted every one to three years.

Although there may well be a difference between the assessed and appraised, or market value of a property, these two figures are often also quite similar, as they utilise many of the same components in order to arrive at a price that is fair. These two ways of determining a home’s value do differ significantly in that they are used for entirely different purposes, though. A home appraisal or market valuation is usually done for the purposes of selling a property, while home assessments are necessary in order to tax the property accurately.

What assessed and market values mean to you

The assessed and market value of a property are useful to property sellers and buyers in a number of ways.

While some home sellers may get upset when the assessed value of their home does not correlate with its market value, this could actually benefit the seller in significant ways. For example, sellers may use the assessed price to justify their asking price. If there is only a small discrepancy between the two figures, buyers may concede that the asking price is fair.

This coin has two sides, though. Prospective buyers can easily find the assessed value of a home, as this information can be acquired via property records. If there is a big difference between the assessed value of a home and its market value, buyers could question whether the asking price on a property is not exorbitantly high.

How to challenge an assessed real estate value

Challenging a home assessment is notoriously difficult and, in fact, home valuation disputes only have a 5% success rate. Still, homeowners are able to challenge a home assessment that is too low or too high by being thorough.

For example, many home valuers do not enter the property when they come to do an assessment of the property’s value – this is called a desktop or kerbside valuation. In this case, the reason for a valuation that the homeowner doesn’t agree with might amount to something as simple as the assessor simply getting the size of the property or the amount of rooms in the house wrong.

People who’d like to challenge their property valuations can request to see the valuation report, and may pick up on errors like these, that could ultimately have a big influence on what an assessor deems the property worth.

Gathering additional information like suburb reports can give homeowners insight about the assessed value of comparable properties in their city or suburb, which can also help to shed light on whether the value of their own home is reasonably priced.

In this regard, the real estate agent helping them to sell their property may be of assistance to homeowners. As has been mentioned earlier, there may be differences between the assessed and market value of a home, but because these two value estimates take so many of the same factors into account, huge discrepancies could point to errors during the home assessment to determine the taxation that will be charged on it.

Once homeowners have collected sufficient evidence that a property valuation might not be accurate, supporting documents can be presented to the bank or home valuer.

Conclusion

The assessed and market value of a property are not the same thing, but do influence what a property ultimately sells for. Although they are different, both estimations will have an influence on the price a property fetches when it is sold.

Home sellers and home buyers need to stay abreast of trends in the property market, while also doing thorough research to ensure that the price they receive or pay for a property is fair and realistic.

A real estate agent who has been doing business in a given city or suburb for some time is invaluable to homeowners and sellers. These experts of the property world have access to the resources, as well as to a large database of potential buyers and sellers. To find an agent you can trust, contact Perfect Agent today.