Why Your Home’s Market Value and Assessed Value Often Differ

Answer

Every homeowner in the U.S. encounters two key figures: the market value and the assessed value of their property. While both relate to your home’s worth, they serve different purposes and rely on distinct methods of calculation.

Market value represents the price a willing buyer would pay a willing seller under normal conditions. Appraisers and real estate agents determine this figure by:

• Comparing recent sales of similar homes in your neighborhood.
• Adjusting for property features—square footage, upgrades, lot size.
• Considering current market trends, inventory levels and demand.

Assessed value, on the other hand, is set by your local assessor’s office to calculate property taxes. Key differences include:

• Assessment ratio: Many jurisdictions apply a fixed percentage (often 60–100%) of market value.
  For example, if your home’s market value is $400,000 and the assessment ratio is 80%, your assessed value becomes $320,000.
• Reappraisal cycle: Assessors usually update values every 1–4 years, so assessed values can lag behind market swings.
• Local rules: Caps, exemptions (e.g., homestead deduction) and appeal rights vary by state and county.

Because assessed values drive your annual tax bill, they often sit below the true market price—especially during rapid appreciation. Conversely, in a declining market, your assessed value may remain higher until the next reassessment.

Before disputing your property tax, it’s advisable to review recent sales data, compare your assessor’s records and, if needed, consult a local real estate attorney or appraisal professional. Understanding both values helps you plan for taxes, refinance decisions and the sale of your home.