It all depends on who wants to know. The tax assessor? The insurance agent? The banker? Or, are you going to try to sell it (market value)? The different values placed on a property by the respective parties often confuse home owners and/or prospective buyers. If you've bought or sold a home recently, you probably noticed the real estate agent, insurance agent, tax assessor and bank all had a different idea of it's TRUE value.
MARKET VALUE is easy, it's what a buyer will pay. Market value is driven by multiple factors to include supply and demand, condition, and interest rates. You must understand market value before you can understand the other values. My previous blog post, Pricing Your House Intelligently To Sell, should really drive home the point of market value. If a seller is smart they'll wise up on market values based on comparable sales and know what their property is worth on the CURRENT open market. Market value fluctuates and can be volatile which could lead to a seller loosing money if they don't understand current market factors.
ASSESSED VALUE is the value placed on a property based on what the local tax assessor says the property is worth. This value is used to determine how much your annual property tax will be due. Depending on local laws, typically property tax pays for schools, roads, levies, city/county services, etc...The local tax assessor will use a VARIETY of ways to determine value most often resulting in inaccurate property values. Most county assessors will use MARKET VALUE to guide assessed value. Sometimes, depending on the locale, the values will be considerably lower than market value. In other places, the assessed value might be spot on. And, once in a while it's assessed much higher than true market value. Most county assessors have an appeal process to lower assessed value when that happens. At best, assessed value MIGHT and I stress might get you into the ballpark of value but I would personally NEVER use it as a sole determiner of market value.
The INSURANCE COMPANY'S value is not driven by market nor assessed values. It has to do with cost to rebuild in the event of a total loss, such as fire or tornado. In my experience cost to rebuild typically exceeds cost to buy in the case of resale homes. This is simple depreciation of any product bought new; such as cars or televisions. In most cases the cost to rebuild is far more than the cost to purchase; unless it's brand new construction in a brand new subdivision. Tip: Building cost are currently at a five year high, and this is probably a good time to review your coverage on your homeowners policy with your agent. Nothing is worse than to have your home destroyed by fire or the like only to find out your rebuild was based on pricing 10 years ago and your insurance does not cover total replacement of your home as it stood previously.
BANKERS VALUE is determined based on a variety factors. Which include, but not necessarily limited too, market value, assessed value, replacement value (insurance) and appraised value. The one value the banker could care less about is what the specific buyer or seller think the home is worth. The banker is risking the money and wants to ensure the bank's collateral is secure and minimize the bank's risk in the transaction.
So, what's the true value you ask? It's an educated guess and depends on who's asking.