Your property tax bill just arrived in the mail, but the assessed value of your home looks nothing like what your real estate agent thinks your home will sell for. Shouldn’t they be the same? If you think that assessed value and market value have any correlation with one another, you couldn’t be more wrong!
The fact is, they have nothing to do with one another. So what are the differences and how do they affect your property?
Purpose of the Valuation
The primary difference between assessed value and market value is the purpose of each valuation. The purpose of the assessed value is to determine the amount of property tax the homeowner will be required to pay.
Every homeowner will owe property taxes as a way to provide income to local governments for building roads, supporting schools, paying for first responder services including fire & police, and many others. The assessed value of your home determines the amount of property tax you will be required to pay.
Market value, on the other hand, is the price that a buyer is willing to pay for a home. This value comes from the real estate market. While assessed value is calculated once a year or longer depending on the municipality, market value can fluctuate throughout the year, even from one month to the next.
When demand for homes is high, prices increase as buyers are willing to pay more to purchase a home in a certain area. When demand for homes is low in a certain area, then the market value will decrease. Other factors can also contribute to the market value of your home, such as the condition of the property and its features and upgrades (or lack thereof).
Who Determines the Valuation?
The assessed value is determined by the local tax assessor. Generally the assessed value of a home will be less than the market value. Most jurisdictions will set the assessment rate to a percentage of the home’s value.
For example, if the market value of your home is $400,000 and the assessment ratio is 40%, the result is $160,000. Then they multiply that figure by the local “millage rate.” A “mill” is one 1,000th of a dollar, equal to $1 of tax for each $1,000 of assessment.*
In our example, if the millage rate is 2% ($20 per $1,000) then your property tax bill will be $3,200.
By definition, fair market value is defined as “the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”**
As noted above, market value is determined by supply and demand and is the amount that a buyer is willing to pay for your home. It’s totally dependent on what similar homes in the area are selling for. Your real estate agent will provide you with a Comparative Market Analysis (CMA) which will help you to determine the amount that your home should be listed for.
The Bottom Line
The assessed value of your home is used only for tax purposes. The fair market value of your home is essentially its value when you sell it, so it’s important to get a good estimate from your real estate professional, so that you know if the listing price is right.
Contact the Donnelly Group
If you are looking to sell a home in the Phoenix area, the Donnelly Group has the expertise and experience to help you through the process, including providing you with a current CMA, and a realistic, fair and reasonable listing price.