Assessed value and market value are two different numbers your home carries at the same time. Market value is what a buyer would pay for it on the open market. Assessed value is the figure your local government puts on the tax roll, and it is almost always lower, because most jurisdictions apply an assessment ratio that converts market value into a smaller taxable number. A $400,000 home in a place with a 70% assessment ratio has an assessed value of $280,000. The $120,000 difference is not lost equity. It is a built-in reduction that determines what you actually pay in property tax.
What Market Value Means
Market value is the price your home would likely bring in a sale between a willing buyer and a willing seller, with neither one under pressure to close. A licensed appraiser reaches this figure primarily through the sales comparison approach: analyzing recent sales of similar homes nearby, then adjusting for differences in size, condition, lot features, and location. Appraisers look at closed sales, pending contracts, and active listings to capture where prices are heading, not just where they were last quarter.
Outside a formal appraisal, a real estate agent’s Comparative Market Analysis does similar work when you’re setting a listing price. Both methods rely on the same raw material: what buyers have actually paid for comparable homes. Physical characteristics matter, but so do neighborhood forces like school ratings, walkability, and how much inventory is on the market. When supply is tight, market values climb faster than any government assessment can keep up with.
What Assessed Value Means
Assessed value is the dollar figure your local government assigns to your property for tax purposes. A public tax assessor determines it using mass appraisal techniques rather than the individualized inspection a mortgage lender would order. The resulting number lands on the official tax roll and becomes the starting point for your annual property tax bill.
Reassessment schedules vary widely. Some jurisdictions revalue every property annually, others do it every two to six years, and a handful allow gaps as long as ten years between full reassessments. A few states have no statewide requirement at all. Between reassessment years, your assessed value generally stays frozen unless you trigger a change by selling the property, pulling a building permit, or completing new construction.
The Assessment Ratio Is Where the Gap Comes From
The assessment ratio, sometimes called the equalization rate or level of assessment, is the percentage that converts your home’s full market value into its assessed value. If the ratio is 100%, the two numbers are identical. If it’s 50%, your assessed value is half of what the home would sell for. The formula is:
Market Value × Assessment Ratio = Assessed Value
Ratios differ dramatically across jurisdictions. Some states mandate assessment at 100% of market value and then use exemptions or credits to lower the tax burden. Others set ratios well below market, in the range of 10% to 50% for residential property, which produces a large visible gap between the two numbers but doesn’t necessarily mean lower taxes, because mill rates adjust to compensate. What actually matters for your tax bill is the combination of assessed value and the tax rate applied to it, not either number on its own.
You can find your jurisdiction’s assessment ratio on your annual assessment notice, on the county assessor’s website, or by dividing your current assessed value by the estimated market value of your home. If the ratio your assessor used doesn’t match what local law requires, that mismatch is a valid basis for an appeal.
Why the Gap Changes Over Time
Even when the assessment ratio stays fixed, the dollar gap between market and assessed value shifts because the two numbers update on completely different schedules. Market value responds in real time to interest rates, job growth, new development, and buyer competition. Assessed value only moves when the government gets around to reassessing.
This timing mismatch is the most common reason homeowners discover a large gap. In a fast-appreciating market, a home purchased for $350,000 might be worth $500,000 by the next reassessment, while the tax roll still shows the old value or a ratio-adjusted version of it. The reverse happens in downturns: market values drop while the assessed value remains stuck at a higher figure, and owners end up overpaying until the next cycle catches up.
Assessment Growth Caps
Several states go further by capping how much an assessed value can increase each year, regardless of what the market does. These caps range from as low as 2% per year in the strictest states to 15% or 20% over a five-year period in others. Some states use phase-in schedules that spread a large reassessment increase across multiple years rather than hitting owners all at once.
The practical effect is that long-time homeowners in appreciating markets can end up with an assessed value dramatically lower than what their home would sell for. The gap often resets when the property changes hands, because a sale typically triggers a full reassessment at the current purchase price. That reset is one reason property tax bills can vary widely between next-door neighbors who bought in different years.
Physical Changes and Permits
Adding a bedroom, finishing a basement, or building an accessory dwelling unit increases market value immediately. These projects usually require building permits, and tax assessors actively monitor permit activity to identify properties that need revaluation. Even if your jurisdiction isn’t due for a full reassessment, a permitted improvement can trigger an individual reassessment of your property and a supplemental tax bill on top of your regular annual bill.
How Assessed Value Turns Into Your Tax Bill
The gap between market value and assessed value matters because assessed value is what actually gets taxed. The formula is:
Assessed Value × Mill Rate ÷ 1,000 = Annual Property Tax
A mill represents one-tenth of a cent, so a mill rate of 25 means $25 in tax for every $1,000 of assessed value. A $280,000 assessed value at a 25-mill rate produces an annual tax of $7,000. The mill rate itself is set by local taxing authorities. Your county, city, school district, and any special districts each levy their own millage, and those stack together into the combined rate on your bill.
Your tax bill may also include flat fees for services like waste collection, street lighting, or stormwater management. These non-ad-valorem assessments are based on the cost of the service rather than your property’s value, so they appear on the bill but aren’t affected by the assessed-value-to-market-value gap.
Exemptions That Lower Taxable Value Even Further
After the assessment ratio shrinks your market value into an assessed value, exemptions can reduce the taxable figure again. The most widely available is the homestead exemption, which lowers the taxable value of a primary residence by a fixed dollar amount or percentage. A homeowner with a $280,000 assessed value and a $50,000 homestead exemption would pay taxes on only $230,000. These exemptions are not automatic in most places. You have to apply, and they only cover the home you actually live in, not vacation properties or rentals.
Beyond the homestead exemption, most states offer additional relief for specific groups. Veterans with service-connected disabilities are eligible for partial or full property tax exemptions in every state, with the benefit typically scaling with the disability rating. A 100% disabled veteran often owes zero property tax on a primary residence. Senior citizens, surviving spouses, and people with permanent disabilities frequently qualify for separate deductions or freezes as well. Income limits usually apply.
Every exemption you qualify for widens the effective gap between what your home is worth on the open market and what you actually get taxed on. Failing to apply for an exemption you’re entitled to is one of the most common avoidable property tax mistakes.
Supplemental Assessments After You Buy
Buying a home or completing major construction often triggers a supplemental assessment. This is a separate, mid-year reassessment that adjusts your property’s taxable value from whatever the previous owner was paying to the current market-based figure. The supplemental tax bill covers the difference between the old assessed value and the new one, prorated for the number of months remaining in the fiscal year.
These bills catch new homeowners off guard for two reasons. They arrive separately from the regular annual tax bill, sometimes months after closing. And mortgage escrow accounts typically do not cover them, so you’re responsible for paying directly. If you recently purchased a home in a state that issues supplemental bills, budget for this cost and watch your mail. The bill may be sent to your home address even if your lender handles your regular property tax payments through escrow.
Challenging an Assessed Value You Think Is Too High
If your assessed value looks high relative to what your home would actually sell for, you have the right to appeal. The process varies by jurisdiction, but the general arc is similar almost everywhere. Review your assessment notice, file a written appeal within the stated deadline (commonly 30 to 90 days after the notice date), and present evidence supporting a lower value.
The strongest evidence is a recent independent appraisal from a licensed appraiser, which typically costs $300 to $800 for a standard single-family home. You can also build a case with recent comparable sales data, photographs documenting property deficiencies the assessor may have missed, and records showing factual errors in the assessment, such as wrong square footage, an extra bathroom that doesn’t exist, or a condition grade that doesn’t match reality.
Most jurisdictions offer an informal review with the assessor’s office before a formal hearing. This step resolves a surprising number of disputes, especially when the error is factual rather than judgmental. If the informal route doesn’t work, the formal appeal typically goes to a board of equalization, a value adjustment board, or a similar hearing body. Filing fees for residential appeals are zero in most jurisdictions, so the main cost is your time and any appraisal you commission.
One detail worth knowing before you file: your appeal can sometimes result in a higher assessed value if the review reveals the property was actually underassessed. That outcome is uncommon, but it does happen.