Tax Appraisal Vs. Market Value

by Marilyn Lindblad, Demand Media
    A house is the most valuable asset for many homeowners.

    A house is the most valuable asset for many homeowners.

    Your home may be your most important asset, but figuring out how much it's worth can be a challenge. Understanding how your home is valued helps you make smart financial decisions about it for a variety of potential purposes. Tax appraised value and fair market value are two ways to value your home.

    Tax Appraisal Value

    The tax appraised value of your home is determined by your city, county or and state regulations. Assessors use the tax-appraised value of your home to determine how much property tax to charge you. For example, New York and Tennessee, each house is appraised at market value, but property taxes are charged on only about 75 percent of the property's market value. The reduction provides a safety net against a homeowner being overcharged for taxes because of a temporary, unexpected spike in value at the time of an appraisal. In other states, such as Oregon, the assessor does not reduce the appraised value for the purpose of assessing tax, but homeowner-friendly legislation caps the growth in assessed value, for tax purposes, at 3 percent.

    Market Value

    Market value is the price a willing buyer will pay to a willing seller in an arm's length transaction with no special time restrictions. A mortgage lender may use a market value appraisal to ensure that the property it's lending money on is worth more than the amount of the loan. Market value may also be used to determine a property's value for the purpose of a divorce or the dissolution of a business partnership.

    Similarities

    Both tax appraisal value and market value involve the services of an appraiser who has complied with state education, licensing and certification requirements. For both valuation methods, the appraiser analyzes transaction details about comparable homes that have recently sold in the same area as the house that is being appraised. The appraiser adjusts the value of the appraised house upward or downward based on differences in such features as square footage, location, room size, condition and the finish surfaces used in each home.

    Differences

    The primary difference between a tax appraisal and a market value appraisal is the purpose behind the valuation of the property. The purpose of a tax appraisal is to evaluate and assess the property taxes you owe on your home and the land it sits on, based on all the factors that go into valuing a home, plus the peculiarities of your state's property tax scheme. The purpose of a market value appraisal is to validate the worth of your home for a purpose unrelated to taxes, such as litigation or financing.

    About the Author

    Marilyn Lindblad practices law on the west coast of the United States. She has been a freelance writer since 2007. Her work has appeared on various websites. Lindblad received her Juris Doctor from Lewis and Clark Law School.

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