Market Value vs Assessed Value — What Is the Difference in Real Estate?

Market Value vs Assessed Value — What Is the Difference?

Market value in real estate is the probable price a property would sell for on the open market, while assessed value is the value assigned by a tax assessor to calculate property taxes. The real estate license exam tests this distinction under the Appraisal & Valuation section with questions about how each type of value is determined and which applies in different calculation scenarios.

This guide defines both terms, compares them in a clear side-by-side breakdown, and walks through when each appears on the exam. The key fact to remember: assessed value is typically lower than market value and is used solely for property tax calculations — while market value drives mortgage approvals and transaction pricing.

What Is Market Value?

Market value in real estate is the most probable price a property would bring in a competitive and open market under conditions required for a fair sale — where both buyer and seller act prudently, knowledgeably, and without undue pressure. Licensed appraisers determine market value using the 3 approaches: the sales comparison approach (comparable sales), the cost approach (replacement cost minus depreciation), and the income capitalization approach (income-based valuation).

Market value reflects current market conditions and changes as supply, demand, interest rates, and economic factors shift. Lenders require market value appraisals to approve mortgages — the loan amount is based on the appraised market value, not the purchase price offered by the buyer. If the appraisal comes in lower than the offer price, the lender may reduce the loan.

Market value is not always equal to the selling price. The selling price is the actual transaction price agreed upon by the buyer and seller, which may be above or below market value depending on negotiation, motivation, and local market conditions.

To understand the specific methods appraisers use to establish market value, see our guide on appraisal methods.

What Is Assessed Value?

Assessed value in real estate is the dollar value assigned to a property by a government tax assessor for the purpose of calculating property taxes. Assessed value is typically a percentage of market value — the assessment ratio varies by jurisdiction. Some counties assess at 80% of market value, others at 90% or 100%.

The property tax formula uses assessed value directly: Assessed Value × Mill Rate (Tax Rate) = Annual Property Tax. A mill represents one-tenth of one cent, or $1 per $1,000 of assessed value. Assessors reassess properties periodically — annually, biannually, or upon sale — and reassessment can increase or decrease the assessed value based on market changes.

Property owners can challenge the assessed value. If a property owner believes the assessed value is too high, they can file an appeal through the local assessment appeals board. The appeal process typically requires supporting evidence such as recent comparable sales or an independent appraisal that demonstrates a lower value.

For more on how property tax calculations appear on the exam, see our real estate math study guide.

What Are the Key Differences Between Market Value and Assessed Value?

Market value and assessed value in real estate serve different purposes, are determined by different parties, and often produce different dollar amounts for the same property.

The key exam distinction is that market value drives the transaction while assessed value drives the tax bill. When the exam presents a scenario involving a mortgage or loan qualification, use market value. When the question involves property tax calculations, use assessed value.

When Does Market vs Assessed Value Matter on the Exam?

Market vs assessed value matters on the real estate exam because questions test whether candidates can distinguish between the two types of value and apply the correct concept in calculation scenarios. Mixing them up is one of the most common errors students make on the Appraisal & Valuation portion.

Tax calculation questions use assessed value. For example: “A property has an assessed value of $200,000 and a mill rate of 25 mills — what is the annual tax?” The answer is $5,000 ($200,000 × 0.025). Loan qualification questions use market value. For example: “A property appraises at $300,000 — what is the maximum 80% LTV loan?” The answer is $240,000 ($300,000 × 0.80).

Some questions present both values and ask which applies to a specific situation. The rule is straightforward: if the question involves buying, selling, or lending, use market value. If it involves taxation, use assessed value. For related loan-to-value concepts, see our guide on LTV DTI PMI.

Market Value and Assessed Value Exam Tips

Market value and assessed value questions appear on both the national and state portions of the real estate salesperson exam under Appraisal & Valuation. On the exam, you will likely see these patterns:

• “Who determines market value?” The answer is a licensed appraiser.
• “Who determines assessed value?” The answer is a government tax assessor.
• “Is assessed value higher or lower than market value?” The answer is typically lower — assessed value is a percentage of market value in most jurisdictions.
• “What formula uses assessed value?” The answer is Property Tax = Assessed Value × Tax Rate (Mill Rate).

Here is how to remember the distinction: “M for Market, M for Mortgage” and “A for Assessed, A for Annual Tax.” This pairing connects each type of value to its primary use in exam questions.

Practice market vs assessed value questions on our free real estate practice exam to reinforce these concepts before exam day. Explore additional valuation and licensing concepts at our real estate exam terms hub.

This information is for educational purposes. Requirements may change — always verify with your state’s Real Estate Commission.