Homebuyers and sellers may be familiar with the concept of assessed value and market value of properties. But while these values may seem similar, they differ in important ways.

It’s a myth that assessed value should equate to market value. While most states support the concept that assessed value approximate estimated market value, that often is not the case. Examples include when interior remodeling has occurred and the assessor is unaware of the improvements, or when properties in the vicinity have not been reassessed for an extended period.

Here are four differences to help homeowners gain a better understanding of market and assessed value:

1. Market values can rise or fall depending on the local market. However, assessed value is typically more resistant to market fluctuations.
2. Assessed value is primarily used for property tax. Homebuyers and sellers look more to market value instead.
3. Assessed values are calculated as a percentage of the market value of the property and are typically lower than an appraised market value. A market value is generated by an appraiser and is based on many factors including location, size, condition and improvements on a home compared to recent and current transactions in the same neighborhood.
4. According to the Appraisal Institute’s 6^th edition of The Dictionary of Real Estate Appraisal, the market value is the purpose of many real property appraisal assignments, particularly when the client’s intended use includes more than one intended user. According to the Appraisal Institute’s 14th edition of The Appraisal of Real Estate, assessed values are useful as supporting data in analyses for assignments involving other types of value. For example, a comparison of assessed value can aid in comparable properties, or research into trends in assessed values can be used as secondary evidence of changing markets.

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