The value of a property is important to different interested parties for different reasons. As a potential buyer or homeowner, it's critical to understand what the values mean and how they're derived. The estimated market value and the taxable market value are two different estimates of property value. They are used for different purposes and in some cases aren't even similar to one another.
Estimated Market Value
The estimated market value of a home is the price that the property would be expected to sell for on the open real estate market. It is also called the fair market value or appraised value.
Real estate agents use this value to set a price for a property. It is also used by mortgage lenders during the loan approval process. The lender must verify the value of the property to ensure the requested loan is in tune with the property's value.
There is no set formula for determining estimated market value. It’s primarily based on your realtor’s appraisal and recent sales of comparable properties in your area.
Use of Property Appraisals
A property appraisal is conducted to determine the estimated market value of a home. Licensed appraisers complete the appraisal process by visiting the home and walking through it. The appraiser works with a checklist and documents the physical features of the property, such as the type of structure, building materials, size, number of rooms and any upgrades.
Based on this information, the appraiser estimates the value, then compares it to other similar properties in the area. These properties are known as "comps." The appraiser may adjust the value based on the comps.
If you’re unhappy with the appraiser’s number, talk to your realtor. You might even want to consider making improvements to increase your property’s value and the appraisal.
Taxable Market Value
The taxable market value of your property is the value of your property as determined by your local government. It’s what they use to calculate the amount of property tax you will owe each year. Your local assessor may look at comps, replacement and maintenance costs, and improvements. They would also consider any income you’re making from the property, like renting out an in-law unit.
A predetermined assessment rate is applied to calculate your property’s taxable market value, and then the local tax rate is applied. Tax rates vary dramatically between jurisdictions. The taxable market value is only important to the tax collector and the property owner. It often differs from the estimated market value.
Use of Tax Assessments
The taxable market value is not determined through an appraisal. A tax assessment is the method used to determine the taxable value. The assessment process is determined based on the jurisdiction's rules, but all of the properties within one jurisdiction must be assessed in the same manner.
A tax assessment is generally not as in-depth as an appraisal. The assessor typically does not physically enter the property, although he might drive through the neighborhood. The taxable market value is reassessed from time to time, which is what causes property taxes to fluctuate.