What If Your Home Market Value is Different Than Your Assessed Home Value?

 Industry, Tips October 6, 2022October 7, 2022  Seth Styles

Some people have no clue about their home’s value. Others methodically scrutinize and analyze, but still end up with doubts. And still there are those who fully trust one figure, say a property assessment, only to list their home and find that the market doesn’t quite agree. There are so many moving factors involved with valuation that precision can be tricky. But excuses aside, what should you expect if your home market value isn’t matching your assessed home value? In our experience, knowledge is power in situations of doubt. Let’s take a closer look at these two types of home valuations. 

The Differences Between Home Market Value and Assessed Home Value

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If your home market value and assessed value match, you’re actually in the minority. With such radically different methods used to determine the results, there’s plenty of room for variables. But it can help to know the glaring differences between the two valuation types.

Assessed Value

One common misconception about assessed home value is that it’s meant to determine a reasonable listing price. But assessments are typically conducted with one thing in mind: property taxes. It’s why public tax officials usually conduct assessments. When a homeowner receives an annual property assessment, the result can come as a shock. But before you get worried about a low figure, keep in mind that the assessed value determines how much you pay in property taxes. So, the lower value can actually be a good thing! 

Still, it’s common for homeowners to argue against the assessment’s findings. They may have a point. According to the National Tax Payers Union, over 60% of the country’s houses are assessed at a greater amount than their actual value. But sometimes homes list and sell for higher than their assessed value. This all goes to show that a property assessed for tax purposes isn’t the best indicator of a home’s market value. However, you can use assessed home value on a prospective property to estimate the affordability of its property taxes. It’s usually not significant enough to sway a sale either way, but forewarned is forearmed. 

Market Value

As we’ve mentioned, the home market value, often referred to as “fair market value”, is a completely different animal. But it’s an important one to understand, no matter whether you’re buying or selling a home. Simply put, the home market value is the amount for which a buyer will purchase a specific property. This may sound vague. How can someone possibly predict how much a stranger will pay for property? Well, there’s a method to the madness. But before we get to it, let’s examine the process of determining assessed home value for a clearer contrast. 

Calculating Assessed Home Value

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When an appraiser evaluates your home to determine the amount of property tax to collect, the resulting figure often serves as the baseline for assessed home value. The assessed value is simply a percentage of the appraised value in these circumstances. 

Assessed home value can be used to influence your home’s market value. Higher assessments can boost market value but cost you more in property taxes. Lower assessments save you tax money, but also don’t do you any favors if you’re trying to boost your home’s market value. Therefore, it’s sensible to hope for a balance. 

So what do these third party assessors consider when calculating assessed home value? It could be a wide variety of factors. Many of these come straight from the Bureau of Labor Statistics:

• Consistency between legal property descriptions and public records.
• Distinguishing features or renovations.
• Property photos. 
• Comparisons to nearby properties of a similar age and size. 
• Written analysis. 
• Estimated rebuild costs. 

However, most assessors take their findings and plug them into mass appraisal programs using algorithms to reach their conclusion. With different algorithms servicing different appraisers, you could easily get different assessments depending on your assessor.

Calculating Home Market Value

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You could also independently hire an appraiser to determine your home market value, but it can be a costly process. Therefore, most people try to get by on DIY methods. Most commonly, you can get a ballpark figure by measuring your home’s square footage and using it to identify other homes in the area with a similar style and age. But these days, there are plenty of ways to estimate your home market value through a quick online search. JohnHart even offers our own free proprietary home valuation tool using a unique algorithm. 

Home market value is especially important if you’re planning to sell your home or looking to buy a new home. Financial institutions often use it as the basis for loan decisions since it’s considered more reliable than other valuation types. But the market value can also help you financially plan for your next move and your long-term strategy. 

In the end, your home market value is only as good as the amount someone will actually pay. That’s where the negotiation savvy of a trusted real estate agent can come in handy. 

Home Valuation in California

While we’ve covered the general differences between home market value and assessed home value, the relationship gets a bit more nuanced as we look at individual states. Since JohnHart is based in California, we’ll use our own state as an example of how much state laws and regulations can change this relationship.

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In California, assessed home value is largely regulated by Proposition 13. This amendment was put into place to offer greater protections and clarity to property taxation in the state of California. Under Proposition 13, California property owners can look forward to the following:

• Maximum tax rate of 1% of the assessed home value.
• Taxes earmarked for local government use.
• Comprehensive property assessments reserved for sales or transfers (though there are rare exceptions).
• A 2% annual increase to compensate for inflation. 

Assessed home value is particularly kind to children inheriting property from a parent in California. In most cases, property taxes aren’t subject to assessment as a result of exclusions designed to shield heirs from dramatic tax increases. Property left to an heir who isn’t a child of the deceased is automatically assessed at 100% home market value. This takes a lot of unnecessary confusion out of the process. 

Property owners who reside on a property as their primary residence can enjoy another exemption under California law. Eligible applicants can qualify for up to a $7,000 reduction from the assessed home value. Interested parties should consult with their treasurer’s office for the relevant county contact information. 

Your First Strategic Steps

Homeowners, current or prospective, need to understand the differences between home market value and assessed home value to piece together a solid strategy. Don’t know where to start? We recommend using our home valuation calculator for a quick estimate. Further research is also always helpful. But the counsel of an expert is likely necessary when you’re serious about moving forward with a sale or purchase. In that case, JohnHart has over 400 seasoned and savvy agents who can help you hone the perfect approach for your specific scenario.