What Is the Difference Between Assessed Value and Market Value?
The difference between assessed value and market value lies in the model and analysis conducted by the asset holder. These assets can be houses, company stock, mortgages or other complex assets. Generally, the more opaque or thinly traded the asset, the more likely there is to be a difference between assessed value and market value.
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Assessed Value
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Assessed value is a term often given to an asset when its value is determined by an independent analysis of the overall worth of an asset. This is particularly popular for real estate when the owner is trying to find alternatives to the current market value when determining taxable value and insurable value. Financial derivatives that are difficult to determine, such as mortgage-backed securities, need assessed values based on models rather than on a liquid market value.
Assessed Value for Insurance and Taxes
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Assessed value can also be a term used by insurance companies seeking to determine what it would cost to replace a property piece by piece. They determine the cost of the building materials, the work necessary to reconstruct the property and other factors in rebuilding. Tax appraisers use criteria including the value of the land, the number of stories and other standardized metrics to determine taxable value of a property. Both the tax value and insurance value would be considered the assessed value rather than the market value.
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Market Value
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The market value of an asset is the publicly traded or comparable value of an asset. The easiest values to determine are those that trade on publicly listed markets. It is easy to determine what the market value of one share of IBM stock is at any given moment. For less commonly traded assets such as real estate, independent appraisal experts are used to give their opinion of market value based on the value of comparable properties in the area.
Difference Between Market and Assessed Value
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An assessed value can give a more stable, long-term understanding of an asset's worth. Market value, on the other hand, can provide up-to-the-minute information on the trend of an asset's value. One can easily look at the day-to-day market price of IBM's stock. However, an assessment might be necessary to determine the value of IBM's three-year restricted stock options based on the same stock.
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