Tax-Assessed Value vs. Market Value: How They Differ

Home prices are not fixed. A property's worth can vary depending on who is calculating it and for what purpose. That is why two different figures often come up during a home sale: assessed value and market value.

So what separates tax-assessed value from market value, and how should buyers and sellers rely on each one when negotiating a home purchase?

Let’s take a closer look.

What is market value?

Market value is defined as “the most probable price that a given property will bring in an open market transaction,” says Casey Fleming, a former real estate appraiser and author of “The Loan Guide: How To Get the Best Possible Mortgage.”

In simpler terms, it is the price a buyer is prepared to pay and a seller is willing to accept.

Real estate agents are trained to estimate a home’s market value by reviewing several factors, including:

• External features such as curb appeal, exterior condition, lot size, home style, and access to public utilities.
• Interior features such as room size and count, construction quality, appliance condition, heating systems, and energy efficiency.
• Comps, or similar homes in the area that have recently sold.
• Supply and demand, meaning how many buyers and sellers are active in the area.
• The neighborhood’s location and overall desirability.

A home’s market value is often a useful starting point for many of the questions buyers have.

For sellers, listing agents use it to help set a reasonable asking price. Buyers, meanwhile, should not rely only on what a seller says a home is worth, so their own agents may estimate the property’s value and suggest an offer price they believe fits the market.

Neither number is automatically right or wrong. What ultimately matters is the price both sides agree on to complete the sale.

What is assessed value?

Assessed value is set by local government, usually a county tax assessor, to determine property tax liability.

To calculate a home’s taxable value, assessors may look at:

• Recent sales of comparable homes nearby.
• The home’s condition and any recent upgrades.
• Potential income the property could generate, such as rental income.
• The cost to replace the property if it were damaged, such as by fire or a natural disaster.

After that value is determined, the assessor may subtract applicable tax exemptions, such as a homestead exemption, and then multiply the remainder by the local assessment ratio, a set percentage established by the tax jurisdiction, usually between 80% and 90%, to calculate the taxable value of the property.

For example, if a home has a market value of $500,000 and the local assessment ratio is 80%, the taxable value would be $400,000. That figure is then used to determine the yearly property tax bill.

To find a home’s assessed value, homeowners can contact the local tax assessor or use the Realtor.com® property tax tool, which lets them compare their assessment with similar homes. It also provides comparable properties that can serve as evidence if a homeowner decides to appeal a tax bill.

Key differences: Tax-assessed value vs. market value

Can your assessed value be lower than your market value?

Yes, and it often is.

Some states, including Oregon, limit annual assessment increases to no more than 3%, “even if the market value goes up more,” says Nathan Miller, founder of Rentec Direct, a software company that educates property managers and landlords.

That can cause a home’s taxable value to trail its market value, especially in fast-moving real estate markets.

Why the difference matters for buyers and sellers

Homeowners should not be alarmed if their assessment comes in lower than expected. It does not mean the property is worth less. In many cases, it can actually be beneficial.

Assessed value is mainly used for property taxes. A lower assessment generally means a lower tax bill, and that is the primary effect. Buyers and sellers, by contrast, tend to focus more on market value than on tax records.

Even so, assessed value can come into play during a sale because, unlike market value, it is public information found in property records. A higher assessed value may help a seller support an asking price, such as, “The assessed value is $310,000, and I’m only asking $320,000.”

Buyers can also use it to argue for a lower price: “The assessed value is $260,000, but you’re asking $300,000.”

Still, bargaining based on assessed value is unlikely in a market with limited inventory. Even after prices cooled from the sharp gains seen in the early 2020s, competition remains strong in many areas, and market value can stay well above assessed value.

In the end, a home is worth what a seller will accept and a buyer will pay. The only number that truly matters is the one both sides agree on.