Assessed Value vs. Market Value: What’s the Difference?

Ben Luthi has been writing about personal finance since 2013, helping people understand how to make the most of credit card rewards and make smart financial decisions. He has written for NerdWallet, Student Loan Hero, U.S. News & World Report, and Bankrate, among others.

​Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas.

Whether you're an existing homeowner or you're planning to buy or sell a home, understanding assessed value versus market value is critical. The former is used to determine how much you owe in property taxes, and the latter tells you what the property is worth. You may hear people refer to them as comparing tax-assessed value with fair market value instead.

What’s the Difference Between Assessed Value and Market Value?

Purpose of Valuation

The primary difference between assessed value and market value is their purposes. If you're planning to sell your home or buy a new one, the fair market value is what you and the buyer or seller agree on.

In contrast, the assessed value of a home doesn't come into play during the sales process. Once you're a homeowner, though, the assessed value of your property will be used to calculate your annual property tax bill.

Who Decides Each Type of Value?

The official fair market value of a home is determined by the buyer and seller. However, the process starts with a professional appraiser, who inspects the property and considers several factors, such as:

• Lot size, square footage, style, curb appeal, and age
• Number of rooms, quality of maintenance, appliance condition, energy efficiency, and other systems
• Comparable properties in the area that have sold recently
• Location of the property, including the surrounding neighborhood, school district, and other features
• Supply and demand in the local market

Note

The appraisal value of a home can be different than the listing price, and may be used by the buyer and seller to negotiate—without being pressured to accept a deal—to get to the final sales price, which is the fair market value of the home.

On the other hand, the local tax assessor is responsible for calculating the assessed value of properties in their municipality. While some aspects of the calculation can vary, they generally take the fair market value of a property and multiply it by the assessment ratio for where you live, then multiply that figure by the local “millage rate.” In property tax terms, a “mill” is one 1,000th of a dollar, equal to $1 of tax for each $1,000 of assessment.

Assessed Value vs. Market Value Example

Let's say you're planning to sell your home. You hire an appraiser who inspects the property and performs a comparative market analysis, giving you an estimated value of $330,000.

You list the home at that price, but there are some issues with the home, such as a water heater that needs to be replaced and some water damage that must be fixed, and a buyer offers $320,000 instead. You agree to repair the water damage and offer to cover half the cost of a new water heater in exchange for a $325,000 sales price.

If the buyer agrees, neither party feels pressured, and the market conditions are normal—favoring neither the buyer nor the seller—that's the fair market value of the home.

Now, the buyer will soon begin paying property taxes on their new home. If the assessment ratio in that municipality is 40%, multiply that by $325,000 to get an assessed value of $130,000. Then, let's say the millage rate for the local municipality is $20 per $1,000 (or 2%). You'll multiply that by the assessed value to get a property tax bill of $2,600 for the year.

Note

You typically won't pay your property tax bill directly. In many cases, your mortgage lender manages an escrow account for property taxes and homeowners insurance, and a portion of your monthly mortgage payment goes into it.

What if You Disagree With Either?

As a homeowner, you can dispute a home appraisal if you believe it's too low. You'll start by requesting a copy of the appraisal. Look for errors and things the appraiser might have missed during the inspection.

Make sure you point out upgrades and improvements you've made that they didn't include in their report. The appraiser may adjust the estimate based on the information you've provided. If not, you could request a second appraisal from another appraiser.

You can also dispute the assessed value of a property through an appeal. You'll typically have a set period of time after you receive your property tax assessment to file your petition. You may choose to submit your appeal on your own or through an attorney.

You'll typically need to provide documentation for why you believe the property is overvalued. For example, you may enlist a real estate agent to help you run a comparative market analysis on the home and point out certain things that could cause the property to have a lower valuation.

Note

While it's not guaranteed, disputing your assessment through an appeal might cause your local assessor to reduce the assessed value of your home, which, in turn, lowers your tax bill.

The Bottom Line

The fair market value of a home is essentially its value when you sell it, so it's important for both buyers and sellers to understand how it's calculated. Work with a professional to get a good estimate so you know if the price is right.

On the other hand, the assessed value of a property is used only for tax purposes. When you receive your assessment each year, review it and determine whether you agree with it.

Frequently Asked Questions (FAQs)

How close is a home’s assessed value to its market value?

It depends on where you live. In some areas, the assessment ratio is 100%, and in others, it can be lower. You can check with your local municipality to find out how it calculates your assessed value for tax purposes.

How do you find the assessed value of a property?

The tax assessor for your local municipality calculates the assessed value of your property by taking the market value and multiplying it by the assessment ratio for the area. For example, if the market value is $300,000 and the assessment ratio is 75%, the assessed value is $225,000.

How much over assessed value should you pay for a house?

The assessed value of a property is used only for tax purposes. If you're thinking of buying a home, hire an appraiser to provide an estimated fair market value of the home. This figure can help you and the seller determine the final sales price.

How do you determine the market value of a home?

You'll typically hire an appraiser to provide an appraisal of the property, giving you an estimate of the home's value. However, the official fair market value of a home is determined between a buyer and a seller, during normal market conditions.

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. Tax Foundation. "How To Calculate Property Tax Liability."
2. New York State Department of Taxation and Finance. "How Property Is Assessed."

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