Assessed value vs market value: Key differences

A home's assessed value and its market value may differ by tens of thousands of dollars, sometimes creating financial surprises.

Property taxes get calculated based on assessed value, while real estate transactions rely on market value.

Knowing which value to use when makes home buying, and homeownership, simpler.

What does assessed value mean?

Your home's assessed value shows the home's taxable value from your local government's point of view.

Unlike market value, which reflects what buyers might pay, assessed value serves one primary purpose: determining your annual tax bill.

If your local government charges a $5 tax for every $1,000 in home value, a home assessed at $300,000 would require $1,500 in annual property taxes ($5 x $300 = $1,500).

As you can see, homes with higher assessed values require higher tax bills.

Where do assessed values come from?

Most counties hire or elect tax commissioners or tax assessors to oversee the valuation of all properties in the county. A typical county reassess properties every three to five years, though some reassess annually.

During an assessment, officials examine various factors that impact home value, including:

• Property size and lot dimensions
• Home age and overall condition
• Number of bedrooms and bathrooms
• Square footage and layout
• Recent improvements or renovations
• Comparable properties in your neighborhood

Here's where it gets interesting: many jurisdictions don't assess properties at 100% of their estimated worth. Instead, they apply an "assessment rate" (sometimes called an equalization rate), which might be 80%, 90%, or another percentage of the property's estimated full value.

This rate varies significantly by location.

A tax assessment example

Consider this example: a home with an estimated value of $400,000 in a county with an 80% assessment rate would have an assessed value of $320,000. Your property taxes would be calculated based on this lower figure, a built-in reduction that can save you thousands annually.

Assessed value will usually be lower than the value determined during a home appraisal process for mortgage purposes. Your assessed value may lag behind rapid market changes since assessments occur periodically rather than continuously.

While your home's market value might jump 15% in a hot market, your assessed value could remain unchanged until the next assessment cycle.

What is market value in real estate?

Market value shows what your home would likely sell for under normal conditions in the current real estate market. Unlike assessed value, market value reflects what willing buyers would actually pay for your property based on current demand, comparable sales, and economic conditions.

Think of market value as the price tag the real estate market puts on your home right now. While assessed value may stay about the same for a few years, market value shifts constantly, sometimes daily, based on buyer interest, economic conditions, and local housing trends.

What affects a home's market value?

A home's market value depends on:

• Real estate agents who conduct comparative market analyses to price listings competitively
• Professional appraisers hired by lenders during the home appraisal process to verify property worth
• Buyers and sellers negotiating based on perceived value and current market conditions
• Economic forces of supply and demand in your local housing market

Other factors that affect market value include:

• The home's location and neighborhood desirability
• The home's size, condition, and age
• Recent upgrades or renovations
• Comparable sales in your area (often called "comps")
• Current interest rates and economic conditions
• Local market trends and inventory levels
• School districts and local amenities

The home appraiser hired by the lender during the mortgage process should consider all these factors when assigning an appraised value.

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Assessed value vs. market value: Key differences

They're easy to confuse, but these two valuations serve different purposes. Understanding their distinctions helps you make smarter decisions about your property.

• Purpose drives everything. Assessed value exists solely for property taxes: It's the number your local government uses to calculate your annual tax bill. Market value determines what buyers actually pay for your property in today's real estate climate.

• Different players, different methods. Government tax assessors measure value through formulas, often applying an assessment rate below 100% of estimated property value. Market value emerges from buyers, sellers, and professional appraisers interacting in the open market.

• Timing creates major gaps. Assessed values typically change every one to five years depending on your jurisdiction. Market value fluctuates continuously, responding to economic conditions, interest rates, and local housing trends.

This table breaks it down:

• Financial impact varies by value type. A lower assessed value benefits you through reduced property taxes, while a higher market value increases your equity and potential sale proceeds. This distinction becomes particularly important when comparing mortgage rates or refinance rates.

• Lenders care about market value. During a refinance appraisal, lenders rely exclusively on market value, not assessed value, to determine a home's loan eligibility. Your property taxes might be calculated on a $320,000 assessed value, but if your home's market value is $420,000, that's the number that matters for refinancing or home equity decisions.

The gap between these values can work for or against you depending on your goals. Lower assessed value saves money on taxes, but higher market value gives you more borrowing power and equity to work with.

How do assessed value and market value affect negotiations?

Assessed value and market value differences can help shape real estate negotiations.

Sellers set listing prices based on market value, not assessed value. They analyze comparable sales, current market conditions, and unique features that impact their property value to price their homes. A seller who knows their home's true market worth negotiates with confidence and can justify their asking price to potential buyers.

A home with a lower assessed value, compared to market value, can be appealing to buyers. This can lower their monthly payment since property taxes are added to the loan's mortgage payment each month.

Buyers, of course, should know that these cost savings may be temporary. The county may reassess the home's value in the near future, leading to a higher tax bill that pushes mortgage payments up some. Buyers can check with the local tax office to see when a reassessment is scheduled.

Home appraisal offers fresh insight

No matter what happens during negotiations, the home appraisal becomes the pivotal value for the purpose of the transaction. Lenders will require a new appraisal to verify the property's market value before finalizing the mortgage before approval.

If the appraisal comes in below the agreed purchase price, this creates new negotiation opportunities:

• Buyers can request a price reduction to match the appraised value. 
• Sellers might ask buyers to cover the difference in cash.
• Both parties might compromise to save the deal.

Appraisal issues arise in about 20 percent of home purchases.

What should you do if you disagree with your home's value?

When homeowners think their assessed value seems too high, driving up their tax bill, they can challenge the assessed value by:

• Reviewing the assessment notice carefully to learn the deadline for appeals (typically 30-60 days)
• Researching comparable properties in your neighborhood with similar characteristics to see if they have been assigned similar tax values
• Gathering documentation of factors that might lower your property's value: needed repairs, outdated features, or market conditions
• Contacting your local tax assessor's office to schedule an informal review
• Filing a formal appeal if the informal review doesn't resolve the issue

How to challenge a market value

Challenging your market value from an appraisal follows different steps:

• Requesting a copy of your appraisal report and reviewing it for errors
• Identifying overlooked factors that impact property value such as recent renovations or unique features
• Compiling information about recent comparable sales that support your position
• Asking your lender about getting a second opinion through another home appraisal

Factors that affect a home's assessment and market value

Several key factors influence both the assessed value and market value of a home, though they impact each valuation differently.

Location remains the most influential factor for both valuations. Properties in desirable neighborhoods with low crime rates, good school districts, and convenient access to amenities typically get higher assessments and command higher prices on the open market.

Within the context of location, the physical characteristics of your home substantially affect both values, including:

• Square footage and usable living space
• Number and size of bedrooms and bathrooms
• Overall condition and age of the property
• Quality of construction and materials used

Tax assessors typically focus on objective, measurable aspects of your property, often working from public records rather than physical inspections.

Economic conditions profoundly affect market value but may take years to reflect in assessed values due to assessment cycles. During rapidly changing markets, the gap between these valuations can grow substantially.

Renovations can affect both assessed and market values

Recent renovations present another key difference. While major structural improvements typically factor into both valuations, cosmetic upgrades often increase market value without necessarily affecting assessed value to the same degree.

During a refinance appraisal, appraisers evaluate these factors comprehensively, documenting findings in an appraisal report that lenders use to determine loan eligibility.

To maximize both values, focus on maintaining your property's structural integrity and making improvements that appeal to both tax assessors and potential buyers.

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Assessed value vs. market value FAQs

Is the assessment the same as an appraisal?

No, these are different processes. A property assessment comes from a government tax assessor for taxation purposes, while an appraisal is performed by a licensed professional appraiser to find the market value for mortgage lending, refinancing, or a cash sale.

Do market value and assessed value influence each other?

Yes, but indirectly. Market value doesn't consider assessed value in its calculation. However, rising or falling market values in a neighborhood eventually influence assessed values when reassessments occur.

What does assessed value mean on property taxes?

Assessed value serves as the foundation for your property tax bill. Your local government multiplies this value by the local tax rate (millage rate) to determine annual property taxes.

Many jurisdictions assess properties at a percentage of market value through an assessment rate. If your county uses an 80% assessment rate, a home with an estimated market value of $300,000 would have an assessed value of $240,000 for tax purposes.

Take control of your property valuations

Understanding the difference between assessed value and market value helps avoid confusion and poorly researched offers.

Assessed value exists for levying property taxes. Market value reflects what buyers should be willing to pay for your home based on the current condition of the home and the market.

Whether you're refinancing, buying, or exploring your equity options, Better Mortgage's digital tools and expert support help you act confidently on the most accurate data, backed by real-time market analysis, competitive mortgage rates, and a tech-driven experience that puts you in control.

...in as little as 3 minutes – no credit impact