Property professionals commonly refer to three different amounts when they discuss a Property. These are assessed value, market value and appraised value. Novice buyers and sellers may make the mistake of thinking that these terms are interchangeable. However, if you are able to define each of them, you will be much better able to make an informed decision when it comes to buying or selling property and understanding how property taxes are calculated.

Defining Market Value

When a local taxing authority or property tax specialist refers to the market value of a property, they are talking about the price that a reasonable buyer would be willing to pay and that a reasonable seller would be willing to accept. Several factors are considered before arriving at a reliable market value for a given property.

Some of these factors are subjective, like curb appeal. Most of them are more concrete, relating to the size of the lot, the square footage of the home, the overall condition of the property, the location, the size of the rooms and the HVAC system. Realtors further review the prices for similar properties that were recently sold in the area. They also will use their insider information to determine how many buyers and sellers are currently active in the region.

The market value is the number that the an owner may list the property for. Properties may sell for more or less than that amount, depending upon the market and numerous other factors.

What Is the Assessed Value?

Contrast this with the assessed value, which is typically a smaller number than the market value. A local government, usually the county, places an assessed value on every property within its jurisdiction. This value is used to calculate how much in property taxes the owner will be required to pay each year.

Assessors generally use complicated formulas to calculate value. They will review sales of similar homes in their jurisdiction and whether or not any improvements have been made to the property. Additionally, they will figure out how much it would cost to replace the structure if it were destroyed in a fire or natural disaster.

The value that the assessor figures is then multiplied by the municipality’s assessment rate. Typically, the rate is between 80 and 90 percent. Accordingly, a property that is assessed at $250,000 with an 80 percent assessment rate will have a $230,000 assessed value. This is the number that will be used to calculate property taxes each year.

Appraised Value

The appraised value of a property is yet another number. Typically, a professional appraiser is responsible for determining this value. While buyers may influence the market value of a property by their willingness to pay, the appraised value is less fluid. It is frequently the appraiser who establishes “how much the property is really worth” for the lender.

Appraisers use many factors to arrive at a value. This includes recent property sales in the neighborhood, the condition of the property, features specific to the property and many others. The result is a value that the lender relies upon when making a final decision. In essence, the appraiser helps the lender to determine whether or not the property is really worth what the buyer is paying.

Putting It Together

Market value, assessed value and appraised value can all vary widely. However, when you understand the definitions behind these terms, you begin to recognize how each of them can help you to determine property values and how property taxes will impact the property. For even more peace of mind, work with professionals who are familiar with the property types you are looking for. At Assessment Technologies, we help clients navigate the purchase of commercial and industrial properties by offering a pre-acquisition analysis to forecast the property taxes that will be incurred on the property several years from the purchase date.