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Assessed Value vs. Market Value

property tax assessment vs fair market valueMost buyers and seller’s main concern is….

….what is the value of the home I am about to buy or sell?

Looking at a home’s tax assessment can certainly give you a quick value of a home. But assessed value is not the same as the market value of a home.  Relying on tax assessment when it comes time to sell your home or purchase a home will just lead to trouble.

Property tax assessment vs market value will not lead to the same number for a home.  The value determined either by a town’s property assessment of a home or determining fair market value through a REALTOR’s comparative market analysis has two different purposes.

Definition of Tax Assessment

The dollar value of a piece of property assigned by a public tax assessor for the purposes of taxation.

Property taxes are a municipality source of income to fund services such as education, roads rubbish removal, emergency services, parks, recreation,  libraries, etc…

Definition of Fair Market Value

The price agreed upon and in which the money and property exchange hands between a home buyer and home seller.  Fair Market Value is a price in which the general buying public would be willing to pay. Both buyer and seller must be willing and informed to buy/sell the piece of real estate in a arms length transaction. A transaction where neither party is desperate to sell or buy and where the property is given reasonable exposure to the open market.

But fair market value is not truly established until a buyer and seller come together and the transaction is completed.

Property Tax Assessment vs Market Value Scope and Purpose?

A municipality will occasionally send out a tax assessor to evaluate your home based on its size, amenities and land value.  The assessor uses sales comparisons, cost or replacement approach or income method to determine the value of your home, all structures on the property and the land.

A mill or millage rate is applied as a multiplier to determine what your annual taxes will be.

Municipalities will make adjustments to either a home’s value or the mill rate, within the state and local laws, so that all the collected property taxes meets a town’s budget.

Here in Massachusetts, there is proposition 2 1/2, which limits how much taxes can go up in one year.  Thus in a rapidly appreciating real estate market as we have now, you will find tax assessments lagging compared to fair market value.

Fair market value is determined by a real estate agent or appraiser.  The approach is usually a sales comparison approach, which is to find homes that are similar that have recently sold.

Adjustments are made to the comparables based upon size amenities, condition, etc… and the properties are then averaged. T

This is the best determination to see what a potential buyer will purchase a home for.

You will find assessed value to be somewhat of a lagging indicator of value.  When real estate prices are rising assessed value will generally be lower than fair market value.  When real estate prices are declining you will find assessed values will generally be higher than fair market value.

Remember the purpose of a tax assessment vs fair market value or very different.

While a home’s assessed value will get you in the ballpark of fair market value, it is by no means a way to determine the fair market value of the home.  A home’s tax assessment will not fluctuate like a home’s market value.

Assessment vs. Market Value- A Real-Life Comparison

Below is a graph of all the single-family home sales in Tewksbury Massachusetts over a 30 day period in 2012  versus one created in 2021.  The sold price, which establishes the fair market value is then compared to the town’s assessment of the home.

In 2011, out of 19  homes that sold the average sale price to assessed value was 97.36%.  A low was a sale price 53% below assessed value and a high of 140% of assessed value. 2011 was a market that was still recovering from a significant downturn

Compared to 2021 with 18 homes that sold the average market value to ass was 30% greater than the assessed value.  Not one home sold below market value but there were homes that sold for 85$ greater than the assessed value!

If you are buying or selling a home, you cannot rely on the inaccuracies of the tax assessment to determine the value of a home.  Tax assessment tend not to adjust much and do not give an accurate picture of current market conditions.

what's my home worth- instananeous home values in Massachusetts

2012 Market Value Vs Property Tax Assessment

Street Sale Price Assessed Value Sale Price as a percent of Assessed Value
Newton Avenue $198,900.00 $229,900.00 86.52%
South St $135,000.00 $254,700.00 53.00%
Jodi Dr $350,000.00 $381,500.00 91.74%
Emily Rd $397,000.00 $369,900.00 107.33%
Heather Row $335,000.00 $433,800.00 77.22%
Darby St $180,000.00 $250,300.00 71.91%
Andover St $287,000.00 $318,800.00 90.03%
Maplewood Rd $390,000.00 $348,100.00 112.04%
Veranda Ave $230,000.00 $262,000.00 87.79%
South St $278,000.00 $252,000.00 110.32%
Chandler St $312,500.00 $252,400.00 123.81%
independence Ave $286,000.00 $239,800.00 119.27%
Laurie Dr $202,000.00 $254,200.00 79.46%
Homestead Ln $435,000.00 $451,600.00 96.32%
Pomfret Rd $334,500.00 $337,900.00 98.99%
Wells Drive $549,900.00 $569,900.00 96.49%
Salem Rd $260,000.00 $254,200.00 102.28%
Pocahontas Rd. $378,000.00 $268,200.00 140.94%
River Rd $275,000.00 $263,600.00 104.32%

2012 Market Value Vs Property Tax Assessment

East Street $410,000.00 $320,600.00 127.9%
Patten Road $394,000.00 $336,700.00 117.0%
McLaren rd $392,000.00 $325,300.00 120.5%
Chandler St $420,000.00 $364,800.00 115.1%
Claire Street $490,000.00 $344,900.00 142.1%
Rhoda Street $505,000.00 $361,900.00 139.5%
Susan Drive $499,000.00 $480,000.00 104.0%
East Street $510,000.00 $463,200.00 110.1%
Northgate Road $550,000.00 $427,100.00 128.8%
East street $540,500.00 $459,700.00 117.6%
Pike St $600,000.00 $412,900.00 145.3%
Algonquin Dr $540,000.00 $349,600.00 154.5%
Sandy Lane $610,000.00 $329,800.00 185.0%
Heidenrich Drive $582,500.00 $492,000.00 118.4%
Greenmeadow Drive $630,000.00 $476,100.00 132.3%
Lancaster Dr $625,000.00 $506,900.00 123.3%
Barry Dr $690,000.00 $487,500.00 141.5%
Catamount Rd $875,000.00 $793,200.00 110.3%

Isn’t it funny that homeowners want their fair market value to be as high as possible but their assessed value to be as low as possible?

tax assessment vs market value

Tying it together

While property tax assessment and market value both establish a value for a piece of property, those values can be wildly different in some cases.

Much has to do with the purpose of determining a value.  Property tax assessment value is really a way to apportion taxes to a homeowner’s “percentage” of property owned in a town.  The town’s purpose is to fulfill a budget.

Fair market value is what a buyer and seller will agree on for a sale price in an open market.

The methods to determine tax assessment vs market value may be similar but are not exact.  In a rapidly rising market assessments will generally be below fair market value.  In failing markets, assessments will generally be higher than fair market value.  The difference is in the scope and purpose of how you determine each.

Simply put…

Property Tax Assessed Values are a value assigned to a home by a municipality for the purpose of collecting taxes and meeting a budget.  Fair market value is an agreed-on sale price between a fully informed buyer and sellers who neither are under duress to buy or sell.

Do not rely on property tax assessments to determine fair market value.

Other Great Real Estate Resources:

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This post, Assessed Value vs. Fair Market Value, was provided by Kevin Vitali of EXIT Realty.  If you need help buying or selling a home in Essex County or Northern Middlesex County call Kevin at 978-360-042.