Assessed Value

  

If you own a home, there are two prices attached to it:

  1. The price you pay for it or can sell it for (that's the market value).
  2. What your home is officially worth (that's the assessed value).

Why two house prices? To keep things interesting—and to get you to pay your taxes. Your state charges you property taxes just for the privilege of living in the state. They charge more for the guy living in the McMansion than they do for the guy living in the one-bedroom bungalow (usually), but they still need to figure out who pays what.

Each state is a little different. Some states use a formula and don't even worry too much about what you paid for your house or what your house's value is. In California, you pony up 1.25% of the price you paid for your home, with some adjustments for inflation. In other states, an assessor takes a look at your home every so often and comes up with a dollar figure of what the house is officially worth for tax purposes. Usually, that number is lower than what you actually paid for your hose, and if you whine enough, the assessor may make an adjustment so that for that year at least, your tax bill can come down.

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Finance: What is the Difference Between ...42060 Views

00:00

finance a la shmoop. what's the difference between market value and book

00:06

value? ever tried to sell sunscreen to a white Walker? yeah [zombie walks through snow]

00:11

probably won't make much money. want to know why? now learning about the

00:14

difference between market value and book value will tell it all. first market

00:18

value it's what the market thinks a stock or a bond or a home or a used car

00:23

or whatever is worth. the market the crowd the crazy people.

00:28

all right here's an example of market value gone wild in the 17th century [crowd then tulip pictured]

00:31

Denmark, they valued a single tulip at 10 grand and it didn't even give them a

00:36

triple espresso buzz. go figure. but that's how the market of buyers

00:40

valued that tulip so that's what that tulips market value was. that's what the

00:45

market said it was worth. Book value however is a completely different in a [man walks through art gallery]

00:50

somewhat more rational animal .book value is the dollar amount that a company can

00:54

point to which reflects an asset they physically own. imagine buying a tractor

01:00

factory for 80 million bucks. it depreciates in value 10 million dollars

01:03

a year for 4 years then depreciates that 2 million dollars a year after that. so

01:08

after five years that factories Book value ie the amount we're guessing its [chart showing depreciation]

01:13

value as actually being is 38 million dollars. but lo and behold the factory

01:18

itself is made of Valyrian steel .you know that stuff from Game of Thrones

01:22

that kills White Walkers. so after eight years and one white Walker invasion of

01:27

Chicago later you decide to sell the factory itself because well the stuff [zombies walk in front of skyscrapers]

01:31

it's built out of, that rare material, is suddenly worth a lot more than the

01:35

factory .now after eight years the book value of the factory might be 32 million

01:39

dollars, but some bitter on eBay of tractor companies offers you a hundred

01:43

million bucks! and you accept! that hundred million dollars was the market [man sits behind computer screen]

01:48

value of the tractor factory even though the book value said it was worth a whole

01:53

lot less. securities actually work the same way. they are traded regularly in a

01:57

market place and they reflect their market value even though the book value

02:02

at which they are held is often a lot less. and what about Chicago well let's [smiling man carries bags of cash]

02:06

just say no one's selling much sunscreen these days.

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