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A First-time Buyer’s Guide to Fair Market Value vs. Assessed Value

Posted by admin on September 8, 2022
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A First-time Buyer’s Guide to Fair Market Value vs. Assessed Value

 

When trying to buy a home, you’ve probably heard many real estate terms thrown around. And you’ll hear a lot about fair market value and assessed value.

 

You’ll most likely hear your Realtor® use these terms throughout your buying and selling journey. But what do they mean?

 

In this article, we’ll go over these terms so that you can clearly understand the home-buying process and the impact on your tax responsibility.

 

What is Fair Market Value?

The fair market value (FMV) is generally a price your home would sell for under normal conditions. FMV is different from actual market value, but it is used in some property tax evaluations by your local municipality. 

 

Homeowners can use market valuations based on real estate appraisals and recent comparable sales with the assistance of a Realtor®. An appraisal is a professional opinion of value initiated by the bank providing the loan. Comparable sales are market data of recent real estate transactions with similar criteria to the appraised home (e.g., number of rooms, amenities, square footage).

 

When people look up how much your home sold for, the actual market value from the transaction date is what they will find. 

 

What is Assessed Value?

The home-buying process does not determine the assessed value of your new home. It comes after! 

 

The assessed value is the dollar value assigned by your municipal government for property tax purposes.

 

A tax assessor will determine how much your home is worth. They’ll inspect several factors of your home, including any upgrades or improvements you have made to it since your purchase.

 

They will even determine if you make any income off the property (such as renting it out or putting it up as an Airbnb).

 

Assessed value differs from FMV and is often based on a percentage of the value.

 

What Does the Government Do with My Home’s Assessed Value?

The tax assessor will use your home’s assessed value to determine how much you own in property taxes.

 

This process can now vary from state to county and even county to county. Some tax assessors even use computer software to do your assessment remotely. And every new homeowner has to go through it.

 

Do I Benefit at All from My Home’s Final Market Value?

Your home’s final market value will show up on online listings and paperwork as the final price your home sold for. So when you sell your home, your listing agent (seller’s agent) will use that amount to determine how much your home could sell for.

 

Typically, your home will sell at a higher price than what you paid for it. However, that varies depending on the state of the housing market.

 

Being a first-time homebuyer can be tricky, especially if you have to learn real estate terms in a short amount of time. Working with a Realtor® will reduce stress and help you navigate buying and selling. Plus, they speak the language of real estate!

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