Assessing the value of a home when putting it on the market is affected by a number of factors. There are two numbers to consider when selling: assessed value versus market value.
In some cases, assessed value and market value may be similar. But in general, the assessed value will be lower than the market value. Each of these two numbers will be used in different ways throughout the course of the selling process. Knowing the difference can help you get a great deal.
Understanding assessed value starts with understanding who is assessing the property and why. Counties (similar to councils here in Australia) employ assessors to place a value on a home in order to levy property taxes on it. The assessor looks at what similar properties in the area are selling for. They also assess the value of any recent improvements, any income you may be making from the property (such as renting out rooms), and the replacement cost of the property if it were to burn down in a fire. An assessor is usually a real estate professional, so they are fully aware of the many aspects that go into the sale of a home.
Once the assessor comes up with a number, they will multiply that number by an “assessment rate” – a certain percentage in that tax jurisdiction. The percentage is usually 80% to 90%. So for example, if the assessor determines the market value of your home at $500,000 and your local assessment rate is 90%, then the assessed value of your home will be $450,000.
That sum will then be used by your local government to calculate your property taxes. The higher your home’s assessed value, the more you’ll pay in taxes (again, same as our council rates here in AU)
The market value of a home is based on market conditions – that is, what buyers are willing to pay for a home, and what a seller is willing to accept. Websites like Trulia and Zillow will help give you an idea of how your home compares to others that have been sold recently, but you need to be very careful with these “estimates”. Often these estimates are SOLELY based on recent sales and do not take into account condition of the homes, which in the US can vary greatly.
Other factors will also go into determining market value. The main one is location. How desirable is the area? Are there lots of schools and amenities in the area?
In terms of the house itself, factors will include the exterior condition of the home, style, availability of public utilities and so on. It will also include the number of rooms and their sizes, appliances, heating systems, energy efficiency and so on.
Supply and demand will also drive up market value. If there is a seller’s market, anyone seeing your house as their dream home might be willing to offer more. Or alternatively if the property is an excellent investment, you can demand a higher price.
Its also this market value that you can use to your advantage. If selling on land contract (or vendor terms as here in Australia) you can ask higher than market value possibly. If wanting a quick sale, under-cutting the market value can work in your favour.