One question that many people have is concerning the difference between market value and appraised value. Similarly, I also regularly get asked about the difference between appraised value and assessed value. Both are good questions. Many factors affect the valuation of a property and valuations can differ based on their purpose. Below, we'll talk about market value, assessed value, and appraised value for Atlanta real estate.
The 4 major elements of value are utility, scarcity, demand, and transferability. It is these 4 factors that comprise the degree of value that a particular property holds.
Market value is what a ready, willing, and able buyer will pay to a seller for a home when their are no outside influences. Essentially, it is the most probable price a home for sell for in a fair transaction. It's a negotiated value which changes relative to market conditions (supply & demand) where both the buyer and seller are acting knowledgeably in a competitive and open market. Market value is the most common definition of real estate value because it is required for all federally regulated mortgage transactions.
The most essential assumptions in the determination of market value:
- Buyer and seller must be unrelated
- There must not be any undue pressure on either party to complete the sale
- Both sides must be well-informed about the advantages and disadvantages of the property
- The home must be on the Atlanta real estate market for a reasonable amount of time
- Payment for the property should be in cash or the equivalent
So how is market value different from a market price?
Market value is an opinion of value based on an analysis of data. Contrastingly, market price is the sales price. In most instances, market value is market price (since market value is derived largely from recent comparable sales), but only if the conditions above are met. The biggest differences in the two is that where market value is a theoretical, market/sales price is historical.
Assessed value is the value assigned to your property for the purpose of calculating real property taxes. The assessment is an appraisal by local government appraiser who in most cases uses the sales comparison approach (based on sales prices of comparable properties) to determine a value for your home. Property is reassessed periodically with each district having it's own methods for updating assessments.
In Georgia, real property is assessed at 40% of fair market value unless otherwise specified by law. This assessment occurs at the county level by the local Board of Tax Assessors. The tax bills you receive include both the assessed value and the market value. If you don't agree with your assessed value on the assessment you can file an appeal.
Appraised value is the opinion of a qualified/certified appraiser based on market data---supply & demand, market forces and trends, the sales data for comparable properties, and several other factors. Appraisers can be more conservative in valuing real estate property in an attempt to protect the interests of the lender. The worth of a property is reached by one of three different approaches: 1) comparable (recent sales of comparable properties) 2) Cost 3) Income. In the vast majority of residential listings in the metro-Atlanta real estate market, the sales comparison approach will be used. This approach is based primarily on the principle of substitution which assumes that a buyer will not pay more for a property than it would cost to purchase a comparable substitute property.