In the process of buying or selling a home, you will come across two terms that determine how much a home is worth, market value and assessed value. These two end up being very different numbers and may have you wondering why. To understand why the numbers are so different let’s take a closer look at what exactly market value and assessed value are.
The official definition of market value is The most probable price that a given property will bring in an open market transaction.
In simpler everyday terms market value is the price a buyer would be willing to pay for a home that a seller would be willing to accept. Real estate agents are trained to find the market value of homes in the market that they serve. There are several factors that an agent takes into consideration when determining the market value of a particular property. These factors include:
- Characteristics of the Outside of the Home: This includes curb appeal (outside cute/style factor), overall outside condition, lot size, architectural style, and accessibility of public utilities.
- Characteristics of the Inside of the Home: Things like square footage, size of rooms, number of rooms, quality and condition of construction finishes and appliances, heating and cooling system, and energy efficiency.
- Comparables (Comps): The recent selling prices of similar homes in the same neighborhood/area
- Supply: Amount of homes on the market vs. the number of current buyers
- Location: The desirability of the neighborhood the home is in and the perks of the neighborhood.
Market value is used to help a listing agent work with a seller to determine a fair list price for their home. Market value is also used by buying agents to help them suggest a fair offer price for a home for their clients to offer. It is a very important number as it can make or break a sale of a home, especially when listing a home for sale. The wrong asking price can determine how long a home sits unsold on the real estate market.
The assessed value of a home is determined by a county-appointed assessor. This is for the purpose of setting the amount of property taxes owed on the home. To figure out the assessed value a county assessor will look at what similar properties are selling for, the value of recent home improvements, income that will be made from the property if renting, and replacement cost of the property in case of disaster.
Once an assessor has determined the value of the home it is multiplied by an assessment rate. The assessment rate is a set percentage put in place for the tax jurisdiction in which the home is located. Most rates are around 80 to 90 percent. For example, if a home has a market value of $300,000 and the assessment rate is 90% the assessor will appraise the home at $270,000. This number is then used to determine the property taxes you will pay on the home.
Related: How to Sell in a Hot Buyer’s Market
The assessed value is used mainly for the purpose of determining a property tax rate and market value is more closely looked at by buyers and sellers to determine the best price for a home. The worth of a home is mostly in the eye of the beholder and comes down to what a buyer and seller are willing to agree the house should be sold for. Make sure not to take any number you see too seriously because there is a bargaining room.
Read More: How to increase your home’s value
If you are looking to buy or sell a home on Camano Island I am more than happy to help with that process. We have a team of highly skilled and experienced real estate pros ready to help you. Contact me anytime.