Assessed Value vs. Market Value: What's the Difference?

I recently listed a property in my effective service area.  During the listing presentation, I explained pricing to the homeowner and reviewed the comparable market analysis with her.  A few hours later, she contacted me to let me know that the assessed value of her home was substantially higher than the list price I had recommended and informed me that she wanted to increase the list price to the assessed value - an increase of almost $60,000.

This made me wonder how many homeowners have the same confusion about the assessed value vs. the market value of their property.  Before the bubble burst, it was not uncommon in Atlanta for market value to be 20 - 30% higher than assessed value.  However, that is no longer the case.  As a matter of fact, in many areas, assessed value in markedly higher than market value.  One reason for this is that in an attempt to maintain property tax revenues, most counties in the Metro Atlanta area have refused to adjust assessed values down as market values have dropped. 

Although some homeowners (who understand the difference between assessed value and market value) have successfully challenged their tax assessment and had their property taxes reduced, a great many mistakenly equate the assessed value and market value.  Market value is the price a ready, willing, and able homeowner will pay for a property given current market conditions.  There are a variety of factors which can impact market value, such as:

• Location of the property;
• Current inventory of homes in the area;
• Recent homes sales in the area.
• Crime rates in the area;
• How well the schools in the area perform;
• Condition of the property; and
• Number of distressed sales in the neighborhood.

There are also some factors which do not impact market value including:

• Assessed value;
• How much the homeowner owes on his mortgage; and
• How much the homeowner originally paid for the property.

The reason that assessed value does not impact market value is that assessed value is calculated based on the size and condition of the home only.  It does not take into consideration many of the intangibles listed above.

For a great explanation of assessed value vs. market value, check out this video.