Massachusetts Home Buyer Guide

When buying a home, there are certain Massachusetts real estate terms that may be confusing or misleading to homebuyers, especially first-time homebuyers. Learning the terminology is important for a potential homebuyer to make an informed home-buying decision.

One common misconception among homebuyers is that the assessed value and market value of a house are the same, or have some sort of correlation. The fact is that assessed value has absolutely no correlation to market value. In order to understand the difference between the assessed value and market value of a home, it is important to know what the terms mean.

Assessed Value

The assessed value is assigned to each parcel of property by the local government for taxation purposes. Real estate property taxes are determined by the combination of the following: the city/town’s residential tax rate and that city/town’s most recent tax assessment of property value for the particular property. Determined by calculations specific to the county and town, the assessed value (or Assessment) is used to determine the home value of the property. In other words, the assessment determines how much the homeowner will have to pay in real estate taxes each year. The factors that go into an assessed value of a home include the home’s condition, size, and land value.

Market Value

Market value, or fair market value (FMV), is the dollar amount that the home is estimated to sell for in today’s current market. A pricing/market valuation can be done by a real estate licensee and is often referred to as a comparative market analysis (CMA) or broker price opinion (BPO). The market value of a home is calculated by looking at comparable homes that have recently sold or are for sale in the area, the condition of the house and how it is similar/different to the comparison properties (comps), miscellaneous economic factors, and market trends/conditions at the time of the analysis. Ultimately, the purpose of a pricing/market valuation is to determine what one bonafide purchaser (a home buyer in an arms-length transaction, having no relationship to the seller) would likely be willing to pay for the property in question. The above analysis is what a buyer agent would do to help a potential home buyer decide what to offer.

Appraised Value

The appraised value is different than the assessed value and market value. It is a valuation that is given by a licensed appraiser who has performed an appraisal on a property. Appraisals are most often ordered by a prospective lender that is giving a home buyer a home loan or has been contacted by a homeowner to refinance an existing mortgage. To the bank that ordered the appraisal, the appraised value determines the maximum value a property has when it calculates the loan-to-value (LTV) ratios. An appraisal should closely calculate the fair market value, but unlike another common misconception, there is not one appraised value on a home. Similar to real estate agents, five different appraisers could have five different opinions on a property’s value.

How Assessed Value and Market Value Differ

While market value tends to fluctuate based on recent sales, market conditions, and other factors, tax assessments have little or no correlation to the market value of the home. It is not unusual to see some homes with an assessed value thousands of dollars higher or lower than their market value.

Overall, it is important to remember assessed value is used for taxing purposes only – not to determine the actual value of the home. Though it is important in determining a home buyer’s total cost of ownership, the assessed value should not be used in a real estate negotiation by either party. Homebuyers should only refer to the assessed value when trying to determine how much property taxes they’ll have to pay.

If Your Home's Assessed Value Too High?

There is a way to potentially reduce one's real estate tax bill: file for tax abatement. All the necessary information about the application process and deadlines should be available at the town’s assessor’s office, or city/town hall. Many municipalities' websites have the information and applications.

Applications for abatements are usually due on or before the due date for payment of the first bill. In communities that have quarterly tax bills, the application is due with the communities' 3rd quarter bill, which normally will be due February 1st. In Massachusetts, the town’s assessor has up to three months to act upon an abatement request.

If you are denied your abatement request and do not feel the assessor made the proper ruling, you still have the right to appeal to the State Appellate Tax Board.