home equity value

The Difference Between Your Home’s Assessed Value and its Market Value

Whether you’re interested in selling your home or perhaps taking out a home equity line of credit (HELOC), it’s important to understand the true value of your home. Assessed value and market value can both come into play in these situations, and understanding the difference between them can help you make better decisions along the way. 

Market Value

For most of the decisions you will make about your home – including your asking price if you are interested in selling – your home’s market value is the main factor to consider. Simply put, your home’s market value represents how much your home is currently worth on the market. There are a number of factors that go into determining your home’s market value, and they include:

  • The recent selling prices of homes in the area. One of the biggest factors influencing your home’s market value is the recent selling price for other homes in your area. If homes in your neighborhood are selling high, it’s a good indicator that your home’s market value is on the higher end – and vice versa. 
  • The size of the home. Size is another important consideration when it comes to your home’s actual value. The average price per square foot for other homes in your neighborhood will ultimately determine how your home’s size influences its value. 
  • The extent of updates and renovations. Homes that have been renovated or fitted with new appliances and fixtures have higher values than homes of the same size and in the same locations as older, less modern homes. 
  • The home’s location in relation to schools. The school district in which your home is located will play into the actual market value of your home, too. Homes in districts with better school systems have higher values. 
  • The future impact of construction in the area. If construction is planned in your home’s vicinity, it may affect your home’s value. For example, if a freeway or airport is expected in the next few years, it could reduce your home’s actual value significantly. 
  • The economy. Finally, your home’s actual value will also fluctuate based on the current state of the economy and the housing market as a whole. 

Assessed Value 

Conversely, your home’s assessed value is utilized primarily for tax purposes as it is the determining factor for your property taxes. Usually, a home’s assessed value is much lower than its actual value, which can be quite surprising for many homeowners. Many of the factors that go into determining the tax assessed value of your home are the same as those used to determine the market value, but the biggest difference is that the assessed value is almost always somewhere between 60% and 80% of the home’s actual market value. The amount of property tax you pay each year is based upon this assessed value, so the higher it is, the more taxes you will pay. 

Understanding your home’s assessed and actual market values is important for many reasons. If you are in the market to purchase a home, the assessed value can give you an idea of what you will pay in taxes each year. Conversely, if you want to sell your home, the actual market value will have the highest impact on your asking price.