The largest portion of the United States population is Millennials, at over 72 million people strong, but only 17% of millennials own a home. However, many millennials want to buy a home, and, in many cases, that creates a bidding war that increases values. Additionally, since home sales in Southeast Michigan are happening rapidly, some struggle to find a home at a fair price. In this article, we examine the difference between Assessed Value and Market Value, which can be helpful to understand as a homeowner or as a first-time homebuyer.
Preparing to Buy or Sell a Home
During the home buying process, there will be an appraisal done on the property. The mortgage provider usually requires this appraisal, but those buying in cash would be wise to pay for their appraisal. This is the process of a professional reviewing the home details and determining a fair estimate of the home’s value. This is important because it informs all parties of the estimated value to ensure a reasonable purchase price. “Assessments” and “Appraisals” follow a very similar process. Still, the difference is that “Assessments” usually only refer to the city’s required valuation, and the “Appraisal” is more focused on the value for the sale of a home.
How Market Value is Calculated
Essentially, the market value determines how much a home will cost. This value is typically derived by beginning with the assessed value and then accounting for items such as realtor commissions, required repairs, and any price negotiation between both parties. For example, based on the appraiser’s opinion, a seller could list their property at $100,000, but that does not mean someone is willing to pay that amount. Therefore, the amount the property can actually be sold for is referred to as the Market Value.
How Tax Assessed Value is Calculated
So, why is it important to know the difference? This primarily comes down to the annual property taxes. Only the Assessed Value is used for the property tax calculation. This is important because it may affect any budget estimates when buying a home. As the Assessed Value increases, so will the property taxes that are due, regardless of the actual Market Value has increased or not. Some cities or counties will require an assessment periodically to ensure that property taxes keep up with an increase in the assessed property value. These “Assessments” can be contested if the homeowner believes the value is inaccurate. Things such as remodels, property enhancements, and recent home sales can all be factors that may influence the Assessed Value, and these may not be fully available to the professional valuing the property.
Assessed Value vs. Market Value – Summarized
- The Assessed Value of a home is the amount upon which property taxes are levied.
- The Market Value of a home is the amount a buyer would be willing to pay.
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Please feel free to forward this commentary to a friend, family member, or co-worker. If you have had any changes to your income, job, family, health insurance, risk tolerance, or overall financial situation, please contact us to discuss it.
We hope you learned something today. Our team at Summit Financial would love to hear any feedback or suggestions if you have any.
Zachary A. Bachner, CFP®
with contributions by Robert L. Wink, Kenneth R. Wink, and James D. Wink.
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