Home Assessments...Do They Reflect Market Value?

As a real estate professional, we often hear sellers and buyers alike refer to a home's asking price in correlation to the the assessment. To begin, it's important to understand the difference. According to the International Association of Assessing Officers, the Assessment is the value used to calculate your property taxes. An assessor will first make a determination of market value, then multiply it times a factor (how the factors differ depend on local laws). The result is the Assessment, or Property Tax Assessment. As a homeowner, it's always extremely important to understand your property tax bill and how it is derived. 

So then how is market value determined? The Fair Market Value of any piece of property is the price at which it will sell in an open market within a reasonable period of time. 

It's the question agents strive to answer when assisting sellers list their home for sale, and when assisting buyers purchase a home. To determine market value, the agent will look at comparable properties in the area that have sold in the past 6-12 months. It is not always an exact science, especially in communities where home styles and amenities can vary greatly even within a neighborhood as opposed to a subdivision where the homes are very similar. It can also be difficult if there is a shortage of homes that have sold during the past year. 

So back to the question at hand...Do home assessments reflect market value? In a nutshell, no. Now, that being said, there is often an interesting trend between assessment and sale price within given areas. I will research and calculate this trend and use it as a guide in determining a property's market value either when helping a seller determine a listing price or a buyer determine how much to offer. It is certainly not exact, but it can be used as another tool in the arsenal of determining value. 

It is important to remember that, at the end of the day, Fair Market Value for any property is what a fair and informed buyer is willing to pay for it. 

As always, I would love to hear your additional thoughts and comments. 

Be well,

Rhonda