Market Value vs. Assessed Value
When purchasing a home, you often hear of many terms that you may not know the definition of. Closing costs, quitclaim deed, chain of title, purchase agreement… One of the most common causes of confusion is Market Value vs. Assessed Value. Already confused? No problem – we’re here to break it down for you.
Let’s start with Market Value.
To put it simply, market value is the estimated price that a house will sell for within a projected period of time that is considered reasonable. This is determined by the current averages on the typical buyer for a property within the area. Put even simpler: market value is the price that a buyer is willing to pay, that will also be accepted (and appreciated) by the seller.
But what factors go into determining that price? There are many things taken into consideration:
- Location: is it a safe, nice neighbourhood? Are there schools, public transit and shopping areas nearby?
- External characteristics: condition of home, curb appeal, lot size, style of home
- Internal characteristics: number of rooms, heating and energy efficiency, interior design
- Comparisons: what have the homes in the area been selling for?
- Supply and demand: how many buyers are looking vs. how many homes are available
From there, the seller uses the market value to determine an asking price. As a buyer, you shouldn’t always trust that the asking price is the same as the market price. So be sure to ask your realtor for guidance.
Moving on to Assessed Value.
The purpose of an assessed value is to provide a basis for collecting taxes necessary in meeting your municipalities annual budget.
To arrive at an assessed value, an assessor first comes in and looks at numerous elements of the home and surrounding area:
- Age of property (adjusted for any renovations or additions)
- Style of home (bungalow, two-storey, etc.)
- Lot size
- Living area condition
- Quality of construction
- and much more.
Once the assessed value is determined, property taxes are then charged back to the current property owner based on your location’s percentage rate. This is done on an annual basis, and varies from owner to owner.
BREAKING IT DOWN:
Assessed value is the dollar value assigned to a property to measure applicable taxes, NOT to provide a buyer with the price of which they should be paying for the property.
So why are the two terms important?
Ideally, you’d want the market value and assessed value of your home to be the same, but that’s rarely the case. Most assessed values are about 80% to 90% of the already determined market value – and that’s okay!
Unsure of what your home's market value is? Get a free market value assessment today.