Estimating the price of a house or property can be difficult. When estimating the net worth of a property, most people confuse the assessed value with market value. Here's the distinction: Market value is the price asked for (and ultimately accepted) for a property, while the assessed value is a price estimation done by an inspector to determine tax rates.
The key difference between the two is while the market price of a property may fluctuate dramatically in time, the assessed value remains relatively constant. Some states like Oregon, for example, do not allow the assessed values to rise more than 3% a year, even if the overall market prices have significantly gone up that year.
The real link between the two is that assessed value helps negotiate pricing. If a seller is asking too much for a property, or if you are being persuaded to sell a property for much less than the market value, the assessed value will help determine a fair baseline price where the property owners and buyers alike can refer to while negotiating costs.
Market value and pricing depends on certain factors such as location, amenities, and number of rooms a property has. Often, real-estate agents will take into account nearby competition and future investment opportunities as well to help determine the market value. Renovations, upgrades, and refurbishments also influence the price.
Assessed value is determined by the government to impose a tax rate. Most municipalities will send an assessor, who is much similar to a real-estate agent, to estimate a suitable price for a property. Typically, though not always, the assessed value is 80% - 90% of the market value. For example, a house on the market for $200.000 will have an assessed value of $160.000 to $180.000, suggesting there is a real link between government produced estimates and privately determined pricing.
Another useful benefit of the assessed value is that unlike the market price, which specifically may be kept private and not disclosed to anyone unless they hire a real-estate agent, the assessed value is public information. This detail is useful to know, especially for those looking to buy or invest. Knowing the assessed value beforehand will help you determine better price estimate that is legally backed up by the government's previous assessment. Buyers may negotiate a fairer price for an expensive property based on estimates made by the assessed value. Likewise, sellers might increase the price they ask for a property should they find that the market price they are asking is actually at or below the assessed value.
Though using the assessed value may be a good stepping-stone in determining fair prices, there are always exceptions. Market values often fluctuate, and even if the assessed value of the house remains relatively constant, this does not guarantee that the property will sell at the expected price. Often factors like location, district, and immediate future of the property may make it justifiable that a seller asks for a price well above the assessed value. Likewise, those very factors (or lack of) might be the reason many buyers will think even the assessed value is too much to ask for a property.
In the end, knowing the difference between the market value and assessed value helps buyers and sellers better investigate whether the price asked for a property is reasonable or not.