Assessed Value vs Market Value

Complete Comparison of Market Value and Assessed Value with Examples of Differences

The Assessed and Market Value of a property, land or asset are two different types of valuations employed for various purposes.

The most easily understood concept of the two is the market value, which is the price that the market has set for the asset based on variety of elements; while the assessed value is the result of mathematical, financial, and other types of calculations and models that intend to estimate the value of the asset based on quantitative and qualitative data.

What is the Appraised Value?

The appraised value of a property or asset is usually derived from mathematical and financial models that incorporate different values to estimate how much the asset should be worth.

This type of value is commonly calculated by professionals who understand the main elements that affect the value of a property and this term is most commonly used for real estate properties.

In this regard, municipal governments use the appraised value as the baseline to estimate property taxes and this value is usually estimated by a group of appraisers who understand the local market.

What is the Market Value?

The market value of an asset is determined by many elements, but it is often the result of the interaction of supply and demand.

The market value can vary on a daily or even hourly basis based on the market’s expectations, preferences, and requirements and it indicates the price at which the asset can be sold at a given point in time.

For real estate properties, the market value can fluctuate based on the neighborhood’s crime rate, easy access to transportation, average property values in the area, the size of the property, its accommodations, among other elements.

Key Takeaways

Purpose and Calculation: Assessed value is determined by a public tax assessor for the purpose of levying property taxes and often uses a standardized method, whereas market value is the estimated amount a property would sell for on the open market, influenced by factors like location, condition, and recent sales of comparable properties.

Impact on Financial Decisions: Market value is crucial for buyers and sellers in real estate transactions, dictating the listing and purchase price, while assessed value is important for homeowners for tax purposes, influencing the amount of property tax owed.

Potential Discrepancies: There can be significant discrepancies between assessed and market values due to timing of assessments, changes in the real estate market, or improvements to the property, highlighting the importance of understanding both values for accurate financial planning and decision-making in real estate.

Differences between Appraised Value and Market Value

Even though both the appraised value and the market value intend to provide a reference for prospective buyers, tax payers, and regulators, each concept estimates value through different approaches.

These are some of the most important different between both:

Impact of market fluctuation

The appraised value of a property is estimated by using technical tools and formulas that incorporate both quantitative and qualitative data to come up with a result. In this sense, the appraised value of a property is not directly affected by the fluctuations in the market value and, in some cases, the appraised value can be very different from the market value, even though these disparities don’t usually last long.

On the other hand, since average property prices in the area where the real estate located may be one of the variables used to estimate the appraised value of the property, the fluctuation in the market prices of the closest properties could have an indirect impact on the appraised value.

In contrast, the market value of the property is entirely defined by market forces’ interactions and by the market’s perception of value, which may or may not be founded on rational criteria.

In some cases, unrealistic expectations or irrational behavior could affect the market value in a way that distorts the price and drives it far from the fundamental variables that determine its fair value.

Uses and purpose

The market value of a property is the most frequently employed measure when it comes to commercial transactions, whether it’s a buy-side or sell-side operation.

Both the buyer and the seller use the market value as a reference to understand how much they may have to pay or how much they will get from buying or selling the property, and in most cases the market value can be determine by looking at recent transactions of similar properties.

The appraised value, on the other hand, is estimated by professionals who employ mathematical models to determine a price or a price range for the property and it is frequently used by governments for taxation purposes, by financial institutions to understand the fair value of a property to extend a mortgage, by accountants, or even by legal professionals who may need it to support certain aspects of a case.

Who determines it?

In most cases, the appraised value of an asset is determined by a professional appraiser who is licensed to do this kind of calculations. Their calculations are considered accurate, as they are properly trained to perform them, and they may be held liable for wrongful estimations that intend to mislead the parties involved, or avoid taxes.

In order to estimate this value, they incorporate many variables that affect the price of a property. Some of these variables include the size of the property, its current situation, the distribution of its space, its furnishing, the area where it is located, the number of years since it was built, along with many other elements.

The market value, on the other hand, is basically determined by what’s known as the “invisible hand” of the market, which is the result of the interaction between supply and demand. A property that is in high demand will usually have a higher value than one that has only a few interested buyers, and vice versa.


Assessed Value and Market Value Examples

Timothy is looking to sell his condo located in the downtown of a mid-sized Florida city. The building was built 7 years ago, it has 102 sq.mtrs., with 2 bedrooms, 2 bathrooms, and an ample kitchen, dining and living room area.

He hired an appraiser to estimate the fair value of the condo and after completing his calculations, he estimated an appraised value of $683,000, considering all the details of the property.

On the other hand, after researching similar properties located nearby over the internet, Timothy saw that the average market value of those condos was around $640,000.

Even though the appraised value was higher than the market value, Timothy understood that there were certain elements that drove the value down, including the fact that the neighborhood has been affected by transportation issues lately.

Bottom Line

The appraised and market value of a property intend to estimate how much the property is worth from different angles.

The appraised value relies on mathematical models while the market value is the result of the dynamics of supply and demand. They are used for different purposes, but they can both be useful for comparison to make sure the property owner or a prospective buyer/seller understands the potential value of the property.

Frequently Asked Questions

What is the difference between assessed value and market value of a property?

Assessed value is the dollar value assigned to a property by a public tax assessor for taxation purposes, while market value is what the property is actually worth on the open market based on current conditions and comparable sales.

Why is the assessed value often lower than the market value?

The assessed value can be lower than the market value because it is determined for tax purposes using a standardized formula that may not account for all the unique features or recent upgrades that contribute to a property’s current market value.

Can the market value of my home affect its assessed value?

Yes, the market value can influence the assessed value if a revaluation is conducted and the tax assessor considers recent sale prices of comparable properties in the area, which may lead to an adjustment in the assessed value.

How should I use the assessed value and market value when buying or selling a home?

When selling, focus on the market value to set your price and negotiate offers, as it reflects what buyers are willing to pay. When buying, consider both values to understand the property’s tax implications and to gauge investment potential, recognizing that market value dictates purchase price while assessed value influences property taxes.

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