Is your Realtor asking for proof of funds? What is proof of funds in real estate anyway? A proof of funds letter is a document that proves that a home buyer has enough liquid cash to purchase a
Home prices aren’t set in stone; instead, their value can change depending on a few key factors—that’s what makes buying and selling real estate so fun! (Or frustrating, depending on your perspective.)
As a buyer or seller, you will likely hear two “prices” thrown about: tax assessed value vs. market value. So what’s the difference?
While assessed value and market value may seem similar, these numbers can be different—typically, the value as assessed is lower—and they’re used in different ways. So let’s clear up any confusion, so you can use these terms to your advantage.
Tax value vs. market value: What is market value?
Casey Fleming, a former real estate appraiser and author of “The Loan Guide: How to Get the Best Possible Mortgage,” says the technical definition of market value is “the most probable price that a given property will bring in an open market transaction.” Or, in plain English, “It’s the price that a buyer is willing to pay for a home, and that a seller is willing to accept.”
Real estate agents are trained to pinpoint a home’s value in the real estate market, which is done by looking at a variety of characteristics, including the following:
External characteristics:Curb appeal, exterior condition of the home, lot size, home style, availability of public utilities.
Internal characteristics: Size and number of rooms, construction and appliance quality and condition, heating systems, and energy efficiency.
Comps, or comparables: What similar homes in the same area have sold for recently.
Supply and demand: The number of buyers and the number of sellers in your area.
Location: How desirable is the neighborhood? Are the schools good? Is the crime rate low?
A home’s market value is often a good starting point for determining all kinds of concerns that home buyers might have.
For one, listing agents use this value to help sellers come up with a fair asking price for their home. And, since buyers shouldn’t just trust what sellers say their place is worth, their own agents can also determine the home’s approximate value and come up with a different price that they think their clients should offer.
No number is right or wrong; the ultimate deciding force is what price a buyer and seller determine they are willing to shake hands on to close the deal.
Tax assessed value vs. market value: What is assessed value?
When trying to understand the assessment value of a property, you must know who is doing the assessing and why the property is being assessed.
Municipalities, mostly counties, employ an assessor to place a value on real estate in order to levy property taxes on it.
To arrive at a value for tax purposes, the assessor looks at what similar properties are selling for, the value of any recent improvements, any income you may be making from, say, renting out a room in the property, and other factors—like the replacement cost of the property if, God forbid, it burns down in a fire (which sounds dark, but assessors are thorough professionals, who consider every possibility).
In the end, the assessor comes up with an assessment value of a home and deducts any tax exemptions for which you qualify. Then, that number is multiplied by an “assessment rate,” also known as “assessment ratio,” a uniform percentage that each tax jurisdiction sets that is typically 80% to 90%, to arrive at the taxable value of your property.
So if, say, the market value of your home is $200,000 and your local assessment tax rate is 80%, then the taxable value of your home is $160,000. That $160,000 is then used by your local government to calculate your property tax bill.
The higher your home’s assessed value, the more you’ll pay in tax. You can check with your local tax assessor for a more exact tax date for your home, or search by state, county, and ZIP code on publicrecords.netronline.com.
What assessed and market values mean to you
While a home’s value in the market can rise and fall precipitously, based on local conditions, assessed values are typically not as sensitive to fluctuations.
Some states, like Oregon, prohibit the assessment from being increased by more than 3% a year, “even if the market value goes up more,” says Nathan Miller, founder of Rentec Direct, a software company that educates property managers and landlords.
Don’t be upset as a property owner if your assessment is calculated at a lower amount than you’d figured. It doesn’t mean your property value is actually less.
Assessed value is used mostly for property tax purposes. A lower assessment means a lower tax bill. Home buyers and sellers, on the other hand, look more to marketplace value than at property tax data.
However, assessed value can come up when you buy or sell a home, because this number, unlike the loosey-goosey market value, is public knowledge contained in property records. So, rising assessed values bode well when home sellers try to justify their sales price to a buyer: “Hey, the assessed value is $310,000, and I’m only asking $320,000.”
Likewise, buyers can use assessed value to justify a lower price: “Hey, the assessed value is $260,000, and you’re asking for $300,000. What gives?”
But the thing to remember with values both market and assessed is that at the end of the day, the price of a home is the amount for which a seller is willing to sell, and a buyer is ready to buy. The only number that matters is the price a buyer and a seller agree on.