Buyers and sellers are often confused between assessed value and market value. What is the difference? Many sellers and buyers as well as misinformed real estate agents will try to use the comparison of these numbers to justify a high or low price. Making such a comparison is often based on a lack of understanding of these values.
Let’s define each term. The market value of a home is the highest price someone will likely pay for the property, assuming that the property was available to all potential buyers at a realistic price or a reasonable length of time. It is also called a home’s “true value” under current market conditions. The prices for homes that you see listed when searching should fall within a reasonable range of the current market value (“should” does not necessarily mean that they are). Experienced, competent Realtors® are able to compare recently sold homes of similar size, location, style, and condition to estimate market value.
The assessed value of a home is a value used to determine how a property will be taxed in the county where it resides. Think of assessed value as a tax value. Ohio, for example, determines assessed value at 35% of a home’s market value. Let’s say your home’s market value is $100,000. That means Ohio’s assessed value is $35,000. The $35,000 is the figure that is used to determine the various taxes assessed on your property by your county and district. Local officials set the tax rate, so the rate varies depending on where you live. To complicate matters, the market value that is used to calculate your assessed value is based on algorithms of other properties in your area and whatever improvement information may be available on them (whether accurate or inaccurate). Moreover, there is inconsistency among properties assessed by the tax assessor because many homeowners protest their taxes in the spring to keep their taxes low. This may result in a different value being placed on their properties but not that of their neighbors with similar homes.
If anyone in a home transaction tries to use an assessed value to justify a low bid or a high selling price, this could indicate a lack of knowledge on assessed value. Remember that assessed value is a tax value. Sure, the assessed value could be too high or too low based on a questionable market value, but it shouldn’t be used for determining price for buyers and sellers. The bottom line is that it’s far more accurate to base the price of a home (whether you’re a seller or a buyer) on recent sales near that home of similar condition, size, and style.