Assessed Value vs Market Value

Difference Between Assessed and Market Value

Both Assessed Value and Market Value are mainly related to real estate valuation and are used for valuing property where market value as the name suggests that the value of the property that we receive if we plan to sell it today, on the other hand, assessed value is based on standard procedures and used by local authorities and for tax purposes.

Assessed value and market value are terms related to real estate valuations that most people get confused about.  Although they might sound similar and sometimes are used interchangeably, they are quite different from each other. Let’s dive in further to understand this difference.

What is the Assessed Value?

The assessed value is calculated based on a standard procedure by the municipalities and the local administration. It is calculated mainly for tax calculations, which are directly proportional to the assessed value. Higher is this value, the higher is the tax levied.

For example, local authorities (city assessor) will determine the land rates and rates of the houses constructed on these lands. These rates decide the amount of taxes that owners will be liable to pay.

Assessed-Value-vs-Market-Value

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What is Market Value?

A property is more than a piece of land or price per square foot. There are a lot of factors that decide how much property can be valued. Market Value is the most probable price that a property will fetch in the open market as of today. It is governed by the economic forces of demand and supply.

The more the buyers interested in the property, the more the value it can fetch for the seller and vice versa. Simply put, it is the price that buyers are ready to give, and a seller is ready to accept in an open market transaction. The market value is calculated by the real estate agents on behalf of their clients.

Assessed Value vs. Market Value Infographics

Let’s see the top differences between Assessed vs. Market Value.

Assessed-Value-vs-Market-Value

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Key Differences

The key differences are as follows –

#1 – Factors Affecting Calculation

The assessed value is usually less than the market value.  This is because it is calculated based on a standard mechanism. An assessor will visit the property, do a thorough inspection of the nearby houses and area, and come up with a fair value. For any area, local authorities would have pre-decided an assessment rate. The fair value calculated by the assessor is multiplied by the assessment rate, and the value thus derived is known as Assessed value. For example, let’s say the fair value was calculated as 500,000, and the pre-decided assessment rate is 80%.

Then, the assessed value will be

  • =500,000 * 80%
  • = 400,000

The calculation for market value is quite different and depends on many factors and market information available at that time. Some of the factors can be:

  • The condition of the property:
  • Age of the property
  • Location
  • Access and connectivity to highways and other major nearby areas.
  • Disputed property

A real estate agent considers all these factors while calculating the market value. However, the factor that affects the most is demand and supply. In case there are more buyers interested in a property, it will surely fetch more market value than any similar property.  On the other hand, even if the condition and accessibility of the property are satisfactory, but there are some legal disputes associated with it, then the sellers might not be interested, and its market value can come down (sometimes even below the assessed value).

#2 – Impact of Market Fluctuations

While the market value of a real estate can go up or down based on various factors, assessed value, to a large extent, is immune to such fluctuations. Many times there are scenarios when market value jumps overnight due to an announcement of government infrastructure projects like spending on a metro project, a new highway being built, etc. However, such announcements would not impact assessed value a lot as it changes only by a small amount based on the circle rates and annual inspections by local municipalities. In fact, in certain scenarios, the government keeps a cap that assessed value can only change by 5-6 % per annum.

To illustrate the impact of market fluctuations, let’s continue with our above example, where the assessed value was calculated as 400,000.  Now assume that near to this property, an IT company has decided to build a new office. As soon as this information is available in the market domain, the dynamics of the locality have changed, which will have an impact on the current valuations. Since there is a new office, people working there would like to buy a house nearby to save travel costs and time.

Hence suddenly, the number of buyers has increased, which is going to shoot up the prices. The same land which was assessed at 400,000 could now be sold as high as 600,000 or 800,000, which is nothing but the market value as this is the value at which the buy and sell transactions will eventually take place.  However, an important point to note is that property tax payable will still be calculated on the initially determined assessed value.

Assessed vs. Market Value Comparative Table

Basis Assessed value  Market value
Impact of market fluctuations Resistant to market fluctuations Market value does get Impacted by local market fluctuations.
Usefulness / purpose  It is used to calculate taxes. It is the price at which the property will eventually be bought or sold.
Factors affecting calculation  Assessment rate as decided by the municipalities; location, size, condition, improvements, recent transactions, or any other market information related to the property;
Who calculates it  County assessor on behalf of a local municipality Real estate agent on behalf of his client
Calculated value Normally less than market value based on an assessment rate as decided by the local authorities. Demand and supply forces decide the market value.

Conclusion

Houses, unlike other products, don’t come with price tags. They don’t have a fixed price but the prices that can change anytime. This is the reason we have the concepts of these values.

  • The assessed value is more like a base price set by the government or local authorities, calculated by a standard procedure and mainly determined for paperwork and tax calculations like annual property tax or one-time registry tax. It is recorded in the government files and does not often change- normally once a year.
  • Market value, on the other hand, is a dynamic valuation determined by several factors, available information, and buyer-seller ability to pay. It can change any time (sometimes even overnight) and to any price. While buying or selling, one is more interested in the market value for transactional purposes, and while owning(or residing), one is more interested in the assessed value for recurring tax calculations.

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This article has been a guide to Assessed Value vs. Market Value. Here we discuss the top 5 differences between them along with infographics and a comparison table. You may also have a look at the following articles –

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