Assessed Value, Market Value or Zestimate

How Much is My Home Worth?

Every year when property tax valuation notices hit people’s mailboxes, I start getting a lot of questions from homeowners about the difference between assessed value and market value, and why neither of these things seem to have anything in common with their Zestimate, the amount Zillow says their home is worth.

In this article explain the difference between these three valuations and tell you which one more closely reflects the price you could list your home for if you were going to sell it right now.

Taxable Assessed Value

First, I want to start out by explaining exactly how the city arrives at your taxable market value and what it means in terms of your property’s worth. The city assessor’s office calculates the estimated market value of your home based on several factors, including its location, size, age, quality, condition and any recent renovations, as well as comparable sales in your area, market trends and neighborhood conditions.

Then they subtract any exemptions you may qualify for. The most common exemption is the Homestead Market Value Exclusion granted to own-occupied homes. Others include the Green Acres and Rural Preserve exclusions for farmland, and the Veterans with Disabilities and Mold Damage exclusions, which are pretty self-explanatory.

Once your exemptions have been applied, the amount that remains is your taxable market value. This is the value your assessor uses to calculate your property tax share.

Not always, but often, your taxable market value is going to be different, and sometimes substantially different than your market value—the amount you could sell your home for right now. It might be higher or lower.

There are a few reasons for that, but the most obvious reason is your taxable market value is your assessor’s best guess at your home’s value. It’s based on general market trends. It’s not like the city assessor visits every house in the city every year and walks around with a checklist and makes notes.

The assessor is using statistical analysis based on common factors to value your home. And in years when the housing market moves a lot in one direction or another, your taxable market value may not reflect your home’s actual market value.

Before we get to that, though, I want to talk about the Zestimate, because that’s where so many people go first to see home much their home is worth.

The Zestimate

Zillow’s Zestimate is calculated in much the same way as your taxable market value. Zillow’s algorithm takes your taxable market value from public tax records and combines it with recent home sales in your area to come up with a value. Zillow’s estimate of your home’s value is likely to be a bit more accurate, but that’s only because the algorithm will use the most recent comparable sales whereas your city assessed values will probably be using comps that are somewhat older.

But much like your city assessor, there’s no one at Zillow who is actually viewing your home to see how closely it resembles comparable homes sold. It’s based on the number of bedrooms, bathrooms, age of the home and square footage. All of those things are important, but it’s still something of a blunt instrument.

Comparing the Comparable Home Sales

South Minneapolis bungalow

Let’s look at an example. This is a south Minneapolis bungalow with 3 bedrooms, 1 bathroom, and a 2 car garage, and it is about 1,650 square feet of finished space.

This is a pretty common home configuration in this part of Minneapolis, so it not hard to comp.

The city’s most recent valuation says this home’s taxable value is $303,000. Zillow calculates this home’s market value at $310,000.

But as a REALTOR®, I know that both Zillow and the city are really undervaluing this property. How do I know? Because the comps they’re using are not the most accurate. I know that because I’ve been inside this home and I know all the updates the owner has made to it since they purchased it.  I have also been inside or looked closely at the photos of recent homes sold so I can see, visually, which ones are the most similar to this home. And I know this area of south Minneapolis and this neighborhood well, and I know what might impact local home values from one block to another. 

Statistically Similar Homes

If you just go off comparable sales, as Zillow probably did, these are the three homes that have sold nearby recently that are statistically similar.

The first one doesn’t look much like our example home. The second home looks a little closer, but it’s a recent flip, and when I look at the photos of the upstairs, I can see the ceiling height is very low and the bedroom is very cramped. I know that your example home has full ceiling height and large bedrooms upstairs. And the third comp is a 2 1/2 story home that looks nothing like our example.

In addition to these comps being quite a bit different than our example house, I also know that homes on this block, which is on a quiet street that ends at a local park, typically sell for more than other areas of the neighborhood.

If I’m going to value this house, and I have the comps to do it, I will look at home sales on this block. And in this case, I can.

Similar Home Sales

Four homes that have sold on the same block as the example home in the past year

Here are four homes similar to this that have sold on this block or within one block in the past year. Two of these homes sold for $420,000, another sold for $365,000, and one for $350,000.

Looking at these comps, I would estimate the market value of this home is about $375,000.  That is considerable higher than either the city or Zillow valued this home. But I think it is also a much more accurate assessment of this home’s value.

So now for my Pro Tip: How can knowing the actual market value benefit you? If you feel your home is being over assessed, you can contest your assessment, but you’ll need to make your cause using comparable home sales that affect your market value. And if you’re considering selling your home, you will want to know what the market value is based on the most current analysis.

Almost any realtor, myself included, will be willing to provide you with a CMA of your home to help you make your case.

J Trout Lowen is a Minneapolis REALTOR® and an expert at helping homebuyers and sellers navigate the Twin Cities housing market.

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