One of the most common questions homeowners and buyers ask is why a property’s tax-assessed value is often much lower than its market value. 

At first glance, it can seem confusing. A home might sell for $380,000, yet the tax records show an assessed value of only $180,000. The difference isn’t a mistake—it’s the result of how property values are measured and updated for tax purposes. 

Understanding the difference between assessed value and market value can help make sense of how property taxes work. 

Market Value: What Your Home Would Sell For 

Market value is what a home would likely sell for in today’s real estate market. It is influenced by a variety of factors, including: 

– recent comparable sales 

– supply and demand in the housing market 

– interest rates 

– location and neighborhood trends 

– the condition and features of the property 

Because these factors are constantly changing, market value moves with the real estate market. 

Over the past century, home prices in the United States have appreciated at an average rate of just under 4 percent per year. Over time, that steady appreciation can create a large gap between a home’s market value and its tax-assessed value. 

Assessed Value: The Number Used for Property Taxes 

Assessed value is the value assigned by your local municipality for the purpose of calculating property taxes. 

Local tax assessors estimate the value of each property and apply the town’s property tax rate to determine each homeowner’s tax bill. 

However, assessed values are not always updated every year. In many municipalities, property values remain unchanged for long periods until the town conducts a full reassessment. 

Because of this, assessed values often lag behind market values. 

For example, if a home was last assessed many years ago, its assessed value may still reflect prices from that time—even though the home may now be worth significantly more in today’s market. 

Why Newly Built or Recently Sold Homes Are Often Assessed Higher 

When a home is newly built or recently sold, it is typically assessed closer to its current market value. 

Meanwhile, homes that haven’t been reassessed in many years may still be taxed based on older values. 

This can create a situation where two similar homes in the same neighborhood carry very different assessed values simply because one has been reassessed more recently. 

How Reassessments Bring Values Back in Line 

To correct these differences, municipalities periodically conduct property reassessments. 

During a reassessment, the town reviews property values across the entire community and updates assessed values to better reflect current market conditions. 

Reassessments help ensure that property taxes are distributed more fairly among homeowners. 

These reassessments do not necessarily mean the town is increasing overall taxes. Instead, they rebalance the tax burden so that properties are taxed more proportionally based on their current value relative to other homes in the community. 

Why the Gap Exists—and Why It Eventually Closes 

Over time, the gap between assessed values and market values naturally grows as home prices appreciate. 

Reassessments are the mechanism municipalities use to bring those values back into alignment. 

While the process can sometimes surprise homeowners who see a higher assessed value for the first time, it is simply part of maintaining a fair and consistent property tax system. 

Understanding the difference between assessed value and market value can make it easier to interpret property records and understand how local property taxes are calculated.