Property Tax Assessed Value vs Market Value: The Difference Explained

Indeed, your property’s tax-assessed value is likely to be higher than the market value for reasons that will be explained in detail below. To find out more about this disparity, how it can impact your financial well-being, and how you can gain a more accurate valuation read on.

Appraised value vs market value in california

What Is The Difference Between Market Value In California And Assessed Value?

In California, as in other states, the market value of your property is not the same as the assessed value.

This is because the assessed value is a figure set by local California county government tax assessor-collectors to calculate property tax. However, the market value of your property is based on a range of different factors such as the demand for properties like yours in your specific Californian location, current interest rates in California, and the state of the property market and economy overall.

The Assessed Value Of A Property

The purpose of the assessed value of your property is to make sure you are paying a fair tax rate compared to others in your location. It is separate from the market value of your property in that it is used solely for this purpose.

However, in states such as California, there can be a link between the assessed value and market value in that they take the purchase price and then add 2% each year.

The assessed value of your property is based on aspects such as where it is located, how good a condition it’s in, and what other comparable properties are selling for in your area.

The major issue with the assessed value that many property owners find is that it’s in the government’s interest to inflate it as much as possible. The reason for this is that with higher assessed values, governments can charge inflated property taxes and generate more revenue.

Sadly, this can cause some distinct problems for the homeowner including issues such as:

  • Leading them to sell their property at the wrong time
  • Leading them to overprice their home – which can result in more sales taxes as well as slower sales
  • Disappointment when it comes to market valuation amount

The good news is that if you are looking for a fast, fair offer on your California property with minimal costs, working with a property buying service can help. Find out more about property buying services in California here.

The Market Value Of A Property

The market value of a property represents how much a buyer is prepared to pay to buy it. Having an accurate idea about the market value of your property is crucial because it allows you to make savvy financial decisions. For example, if you know that the market value of your property is high, you may consider selling and making a good profit. In contrast, if you notice your market value is lower than other properties in your area, you could consider adding improvements to raise it and provide a better return on your investment.

Elements that are integral to establishing your property’s market value include how healthy the economy is overall, how in-demand your type and condition of the property are, and what the current interest rates are like.

Why Is Knowing The Difference Between Market Value And Assessed Value Important?

Understanding these differences is vitally important for the property owner because if they base their financial decision on the wrong value, they can end up losing a significant amount of money.

For example, if you use your market value to predict the amount of property tax you will owe, you may budget less than you will need. Similarly, if you use your tax-assessed property value to estimate how much to sell your home for, you may end up pricing it too high and miss out on valuable viewings and sales. Indeed, market value and assessed value can be closely linked with the latter actually impacting the former. This is because high assessed values may lead property owners to price their homes high and so drive down interest and market value. negatively impacting the true value of their home.

How To Find Out The Market Value Of Your Property?

While knowing the factors on which the market value of your property is based is useful, you cannot accurately estimate on your own. Instead, you will usually need to work with a licensed real estate professional.

how to find the market value of your california property

The Purpose Of Tax-Assessed Value vs Market Value

The two property values are different not only because they are used for different purposes. The assessed value of a property is used to establish the amount the owner owes in property taxes. Whereas the market value is used as guidance for how much the owner should set as the selling price, as well as the amount they could get if they refinanced.

Indeed, assessed value and market value are not the same things. But they can impact each other. That is why it’s so crucial that any property owner has an understanding of both and what they mean.

Criteria for Market Value vs Assessed Value Determination

Not only are market value and assessed value designed for different purposes, but they are also based on different criteria, and determined by different professionals. Market value can be determined by a real estate professional, and is based on factors such as the current property market, and what people are likely to pay for a specific property in that area. Of course, these things will also be influenced by the economic market overall. For example, if the economy is in recession then market values will be down because fewer people in employment means fewer people can move and so the demand for homes is reduced.

When it comes to the assessed value, a qualified tax assessor values property, not a real estate agent. A tax assessor will consider things like the location of a property, with nicer areas usually being charged higher, as well as the condition of the property and how much similar homes are being sold for in the area. Again, homes that are sold for more and that demonstrate higher quality are likely to be assigned a higher assessed value.

Calculating Your Own Property Tax Assessment vs Market Value

While it is possible to get an idea of your property’s assessed value and market value without engaging professionals to do it for you, it can be complicated and so is not usually advised.

However, if you want to establish an estimate for your property’s assessed value then you can use a comparative market analysis or CMA for this purpose. A CMA will allow you to get an idea of the assessed value of your property by comparing it to the other assessed values of properties in your area. When doing this you must remember to account for things such as your location, the condition of the property, and the value of comparable properties in the area.

To establish an estimate of the market value of your property without consulting a real estate agent ( although it’s often better to consult 2 or 3 real estate and then take a mean calculation), you can use an online calculator tool such as this one.

However, do remember that it will be an estimation and nothing more than calculating a property’s market value is a very complex, and often ever-changing process and there can even be fluctuations even when professional real estate agents do it.

Comparing Property Tax Assessment vs Market Value

Knowing your property tax assessment value and your market value will allow you to make sounder decisions when it comes to financial planning including when to sell, or renovate your home, as well as how much to budget for your tax bill.

You can also compare both values to one another to establish whether the profits if you choose to sell your property will be optimized. For this, your market value needs to be higher than your assessed value. However, because every home and location is impacted by multiple factors, such a calculation is more of a guide than a guarantee.

The Assessed Value Of Your Property And New Construction And Improvements

New Construction or Improvements

Adding new construction or improving your property can add value in terms of tax assessment. However, replacements or repairs that are structural will not be included in this calculation. New construction and improvements’ appraised values need to be determined by a certified inspector.

Property Improvements Are Assessed Separately

Additionally, when it comes to the assessed value and improvements it’s important to note that the value for the improvements will be assessed separately to the value of the pre-existing property. Indeed areas that have not been improved will be valued in line with the initial sales price, plus the two percent increase every year.

Implications Of Buying Or Selling A House Below Market Value

f the assessed value of a property is lower than its market value, it may lead you to sell or buy for less. However, there are tax implications for this as you will discover, below. 

What Are The Tax Implications Of Selling A House Below Market Value?

If you choose to sell a property under the market value, some of the value of the property that you are giving away is considered a gift. This means you could be vulnerable to paying federal taxes on it and so it could end up costing you a great deal.

Is Buying A House From A Family Member Below The Market Value A Good Idea?

Similarly, if you are on the other side of the deal when someone such as a family member sells you a property at below-market value you will still be liable for any tax consequences. The current limit for these equity investments is set at $50,000 by the IRS. This means if you go above this you will need to pay tax on the equity.

Conclusion: How Does Market Value vs. Assessed Value Impact On Property & Financial Decisions

While it is confusing to have to deal with two different types of home value, it is crucial to have a clear idea of the two often different values of your property, as it can help you make sound financial decisions.

Knowing the market value of your property is crucial because it will provide you with information you need to know before you consider selling or renovating your property. Knowing your assessed value will help you better plan for your property taxes, and ensure there is no shortfall when the time comes to pay them.

However, in states where assessed value is inflated, property owners need to be mindful that there can be a significant difference in these two values. This is particularly important when it comes to selling their home because they can expect more than is reasonable and this may negatively impact their finances in several ways including disappointment in the true market valuation of their home.

Market Value In California Vs Assessed Value FAQs

knowing the difference between assessed property value and market value

Are Assessed Value And Market Value The Same Thing?

No! Tax-assessed values and market values are not the same things. They are assessed by different officials and have different purposes.

How Much Difference Is There Between Market Value & Assessed Value?

Market value and assessed tax value usually differ up to 20%. Market value tends to be higher, but property owners should watch out for assessed values inflated by the government which can confuse matters. Indeed, it is important to remember here that assessed value is used solely to determine property taxes and does not reflect the true value of a home.

Does Tax Assessment Impact Property Value?

Yes, while assessed value does not typically reflect the true market value of a home, it can influence it. For instance, properties with lower tax-assessed value may encourage more buyers. This can drive the market value up and lead to more profits.

However, when a property has a high tax assessment rate it can discourage buyers. This can decrease the demand, and so drive the market value down, and negatively impact the owner.

On the other hand, properties with lower taxes have the potential to attract more interested parties. buyers. This can drive up the market value of a property and so positively impact the owner.