Tax-Assessed Value vs. Market Value: What’s the Difference?

Home prices aren’t set in stone. A property’s value can shift depending on who’s doing the calculation—and why. That’s why you’ll often hear two different numbers thrown around during a home sale: assessed value and market value.

So what’s the difference between tax-assessed value versus market value? And how should buyers and sellers use each when negotiating a home sale?

Let's break it down.

What is market value?

The technical definition of market value is "the most probable price that a given property will bring in an open market transaction," says Casey Fleming, a former real estate appraiser and author of “The Loan Guide: How To Get the Best Possible Mortgage.”

Put simply, “It’s the price that a buyer is willing to pay for a home, and that a seller is willing to accept.”

Real estate agents are trained to pinpoint a home's value in the real estate market, which is done by looking at a variety of factors, including the following:

• External characteristics like curb appeal, exterior condition of the home, lot size, home style, and availability of public utilities.
• Internal characteristics like the size and number of rooms, construction and appliance quality and condition, heating systems, and energy efficiency.
• Comps, or comparable homes in the same area that have sold recently.
• Supply and demand, or the number of buyers and the number of sellers in your area.
• Location and desirability of the neighborhood.

A home's market value is often a good starting point for determining all kinds of concerns that homebuyers might have.

For one, listing agents use this value to help sellers come up with a fair asking price for their home. And, since buyers shouldn't just trust what sellers say their place is worth, their own agents can also determine the home's approximate value and come up with a different price that they think their clients should offer.

No number is right or wrong. The ultimate deciding factor is what price a buyer and seller determine they are willing to shake hands on to close the deal.

What is assessed value?

Assessed value is calculated by your local government—usually a county tax assessor—to determine your property tax liability.

To assess a home’s taxable value, assessors consider the following:

• Recent sales of similar homes in the area.
• The home’s condition and any recent improvements.
• Potential income the property could generate (e.g., from rentals).
• Replacement cost in case of damage (e.g., from fire or natural disaster).

Once this value is established, the assessor may subtract any tax exemptions (like a homestead exemption) and multiply the remaining amount by the local assessment ratio—a uniform percentage that each tax jurisdiction sets (typically 80% to 90%), to arrive at the taxable value of your property.

For example: If your home has a market value of $500,000 and your local assessment ratio is 80%, your taxable value would be $400,000. That number is then used to calculate your annual property tax bill.

To determine your home's assessed value, you can contacting your local tax assessor or use the Realtor.com® property tax tool, which allows homeowners to compare their assessed value to similar homes. It even pulls comparable properties that homeowners can use as evidence if they choose to appeal their property taxes.

Key differences: Tax-assessed value vs. market value

Can your assessed value be lower than your market value?

Yes, and often it is.

Some states, like Oregon, prohibit the assessment from being increased by more than 3% a year, “even if the market value goes up more,” says Nathan Miller, founder of Rentec Direct, a software company that educates property managers and landlords.

That means your home’s taxable value might lag behind its market value, especially in hot real estate markets.

Why the difference matters for buyers and sellers

Don't be upset as a property owner if your assessment is calculated at a lower amount than you'd figured. It doesn't mean your property value is less. In fact, this could be great news for you.

Assessed value is used mostly for property tax purposes. A lower assessment means a lower tax bill—that's all. Homebuyers and home sellers, on the other hand, look more to marketplace value than to property tax data.

However, assessed value can come up when you buy or sell a home, because this number, unlike the loosey-goosey market value, is public knowledge contained in property records. So, rising assessed values bode well when home sellers try to justify their sales price to a buyer: “Hey, the assessed value is $310,000, and I’m only asking $320,000.”

Likewise, buyers can use assessed value to justify a lower price: "Hey, the assessed value is $260,000, and you're asking for $300,000. What gives?"

However, negotiating based on assessed value is highly unlikely in today's inventory-constrained market. Even though home prices have cooled after record appreciation in the early 2020s, there is still steep competition for homes, pushing the market value well out of range of assessed values.

At the end of the day, the price of a home is the amount at which a seller is willing to sell, and a buyer is ready to buy. The only number that matters is the price that a buyer and a seller agree on.