Do you know the value of your home?
Let’s say you know you pay taxes on a property that is assessed to be valued at $200,000. Then, you start seeing similar homes in your neighborhood selling for $220,000. Does this mean your taxes are about to go up? Or are your neighbors getting lucky and selling at the right time?
Assessed value and market value are different numbers, used for two different purposes. We break down each term below.
The market value of a home is the probable price a given property will get in an open market. In simpler terms, it is what a buyer is willing to pay and a seller is willing to accept.
When selling a home, your real estate agent will help you set a listing price based on the probable market value of your property. This is determined by looking at the external and internal characteristics of the home, supply and demand in your local market, and comps, or comparables. Comps are what houses similar to yours have sold for in your neighborhood in recent months.
Once under contract, a buyer will typically have a home appraisal. The appraiser also uses comps and features of the house to determine the current market value. Typically, the purchase price of the home is close to the appraised value. However, it is important to note that the mortgage lender will not lend more than the appraised value, so if the purchase price is higher than the appraisal, more negotiations may need to take place.
The assessed value is the value the municipality, or town, places on your home. This value is determined by the municipal assessor, for the sole purpose of calculating property taxes. Assessors follow the town’s guidelines to ensure that property assessments are accurate and uniform.
Often, the assessed value of your home is less than the market value. Once the assessor arrives at a value, the number is multiplied by an assessment rate, which is often between 70-90% of the value. (For example, if your home’s market value is $200,000, the assessed value could fall between $140,000 and $180,000.)
The property taxes are then calculated on the assessed value, based on the town’s mill rate. The higher the assessed value of your home, the more you will pay in property taxes each year.
The bottom line?
When buying or selling a home, pay attention to the MARKET VALUE of a home.
As a homeowner living in a home, pay attention to the ASSESSED VALUE to help determine property taxes.