As a homebuyer or homeowner, you have likely heard of different terms that refer to the value of your home, including market value and appraised value. Both are important to understand, but for different reasons.
There’s also a third term that we’ll explain called assessed value. This term is used for tax purposes, but it is also another measure of your home’s value.
Learn more about market value and appraised value, and why these numbers often differ.
Market Value
Market value is what someone would be willing to pay for your home in the current real estate market.
Factors that can influence market value include:
- Supply and demand
- Economic climate
- Property features or amenities
- Curb appeal
- Size
- Sale price of similar properties
- Location
The market value isn’t the appraised value of the home, and it’s not the value used to calculate property taxes. It is simply the value that the buyer and seller agree to based on current market conditions.
Appraised Value in Real Estate Transactions
Appraised value determines the value of the home based on a detailed analysis from a third-party appraiser. The mortgage lender will require the appraisal to minimize their risk, as they won’t lend more than the property is worth.
An appraisal is usually done as part of the home buying process, or if someone wants to refinance. The seller may also ask for an appraisal to determine the listing price.
When performing an appraisal, the appraiser will review:
- The condition of the home
- Interior and exterior
- Structure
- Home improvements or renovations
- Signs of damage or infestation
- Comparable listings or similar properties
Why Do Appraised Value and Market Value Differ?
A professional appraiser’s analysis is much more objective and detailed, while market value is subjective. For this reason, it’s expected that appraised value and market value won’t be the same.
If an appraisal comes in lower than the asking price, it could mean the property was overpriced. Market value may be higher than appraised value if there were multiple offers.
When the appraised value is lower than market value, the buyer may be able to negotiate. Most real estate agents will advise against paying more than the appraised value.
If the appraised value is higher than the buyer’s offer, it means the home is worth more than what the buyer will pay.
Appraised Value Used for Tax Assessments
Appraisal districts also determine a value that is used to calculate how much a homeowner will pay in property taxes, often referred to as appraised value. Depending on where you live, this may also be referred to as assessed value or taxable value.
The value set by appraisal districts is calculated using the same methods that third-party appraisers use. However, home appraisals are often more detailed since they are used for mortgage underwriting. Appraisal districts have thousands of properties to assess, so they often rely on mass appraisal methods.
An assessor that works for the taxing entity will provide this estimation. They use these factors to determine the property value:
- Age
- Condition of the property
- Size
- Market conditions
- Home features
Texas Property Tax Code states that appraisal districts must appraise property at market value as of January 1. In Texas, property value is reassessed at least once every three years.
Protesting Appraised Value
Did you know as a homeowner that you can protest your appraisal district value? Appraisal districts have hundreds or thousands of properties to review each year, often making this system imperfect. Even if your home’s assessed value hasn’t changed, you can still file a property tax protest.
Should you win your appeal, you can expect to pay less in property taxes.
To learn more about how you can save on your property taxes in DFW, register your property with North Texas Property Tax Services.