I had a conversation with a client a couple of days ago that I thought would interest many people. The question came up as to what was the difference between assessed value (price found on the assessor’s website) and market value (price that a house is being bought/sold for). Here is my reply (everything in this post is my opinion, and should be read as such):
There are three different prices when it comes to a house: assessed value, market value, and replacement value. Many times, these three prices are nowhere near each other. I would say, only about 20% of the time does assessed value equal market value. And replacement value tends to be nowhere close to either of those figures.
Assessed value has only to do with taxes. The government is trying to get as much tax revenue as possible, and homeowners are trying to get taxed as little as possible. Most of the time, the homeowner wins. Many houses have had people living in them for 10, 20, or 30 years, and that keeps assessed values down because without home sales to prove the value of a home has gone up, the government has no standing for raising assessed values beyond inflation.
Market value is just that: whatever the market is willing to pay for changing ownership in a home. That is why I talk about comparables (comps), and why I show houses that are as similar as possible when I talk about the market value of a house (list price). The market can shift from week to week. For example, right now interest rates are extremely low and inventory is as well. This means that there are a lot of buyers and fewer sellers. So Sellers can sell their homes for more money because they have more buyers competing to buy it.
Last week, a lot of new homes came on the market. I have one house for sale right now that is a great example of how the market can fluctuate. They were one of only five houses for sale in their price range in their market, then last week that number jumped to 23 houses available in their price range in their market. So I instantly had them reduce their price, because they were in a much more competitive market within a week.
The market price is much more people driven. The assessed value is tax driven. The two very rarely correlate, other than homes with higher taxes will tend to have higher prices.
If you are interested in knowing what your home is worth in this market (hint: it is a seller’s market as of the time of this writing), or you know someone else who is thinking about selling: you can reach me at 515.724.3163 or RyanLynch@KW.com.