Market Value vs Assessed Value | Key Differences

When you're dealing with property value in real estate, you'll often come across two terms: market value and assessed value. While both relate to a property’s worth, they serve very different purposes. To make the best decisions when buying, selling, or managing property taxes, it’s important to understand the differences between these two values.

What is Market Value of a Property?

Market value is the price a property is likely to sell for on the open market. It’s based on current conditions and reflects the amount a buyer is willing to pay and a seller is willing to accept for the property at that moment.

Example of Market Value of Property:

Let’s say you're interested in buying a 2-bedroom apartment in a sought-after neighborhood. You look at similar apartments in the area and find that they are being sold for prices ranging from ₹40 lakh to ₹45 lakh. Based on this, the market value of the apartment you are considering is likely around ₹42 lakh.

What Affects the Market Value of a Property?

• Location: If the property is near key amenities like schools, shopping centers, or public transport, it typically has a higher market value.
• Condition of the Property: A newly renovated home or apartment often has a higher market value compared to one that is outdated or needs repairs.
• Demand and Supply: The more demand for properties in a particular area, the higher the market value will be. For example, a booming neighborhood could see prices rise quickly.

Market value changes with market trends and economic conditions, so it’s important to check the current market value before making any buying or selling decisions.

What is Assessed Value of a Property?

Assessed value is the value placed on a property by a government tax assessor to calculate the property taxes owed. This value doesn’t necessarily reflect the market value of the property and is often lower.

Example of Assessed Value of Property:

Suppose the market value of the property is ₹42 lakh, but the local government uses an assessment ratio of 70% to calculate the assessed value. This means the assessed value of the property is:

Assessed Value = 70% of ₹42 lakh = ₹29.4 lakh

As a result, the property tax will be based on ₹29.4 lakh, not ₹42 lakh.

What Affects the Assessed Value of a Property?

• Assessment Ratio: This is the percentage of the market value used to calculate the assessed value. For example, an area might have an assessment ratio of 70%.
• Tax Laws: Different regions follow different laws regarding property tax assessments, and some may adjust the assessed value based on property improvements or other factors.

The assessed value is typically lower than the market value, as it is used for tax purposes.

Key Differences Between Market Value and Assessed Value of a Property

To make it clearer, here’s a quick comparison of market value and assessed value of a property:

Why Market Value and Assessed Value Matter for Homeowners

Both market value and assessed value affect homeowners in different ways:

• When buying or selling a property, market value is the most important figure. It tells you how much you can expect to pay for or sell the property for.
• When managing property taxes, assessed value is key, as it determines how much tax you need to pay each year.

Example:

Imagine you own a house with a market value of ₹50 lakh, but the assessed value is ₹35 lakh (due to a 70% assessment ratio). This means your property tax will be based on ₹35 lakh, potentially saving you money.

How to Find the Market Value and Assessed Value of a Property?

To Find the Market Value of a Property:

• You can determine the market value by:
• Looking at the sale prices of similar properties in the area (comparable sales).
• Hiring a professional appraiser who can give you an accurate assessment.
• Checking online real estate portals for listings in your neighborhood.

To Find the Assessed Value of a Property:

• You can find the assessed value by:
• Checking your property tax records or your local government’s property tax website.
• Looking at your property tax notice, which will show the assessed value.
• Visiting the local municipal office or tax assessor's office for detailed information.

Why Understanding Market Value and Assessed Value Matters for You

In summary, both market value and assessed value provide important insights into a property’s worth, but they are used for different purposes:

• Market value is critical when you’re buying or selling a property, as it determines the price at which the property will be traded.
• Assessed value is important for managing property taxes, as it directly affects the amount you will pay in taxes.

By understanding these two values, you’ll be better prepared to make informed decisions when handling property transactions and property tax obligations.