The dollar value assigned to real property for the purpose of measuring applicable real estate taxes. A government municipality determines a property's assessed valuation by taking comparable property sales and inspections into consideration. However, the exact methodology depends on the property type and where the property is located.
For example, a particular governmental municipality may base a property's assessed value on a percentage of the property's market value. Market values may be determined based on the property's tax class and the municipality's requirements for determining market value. In determining the market value for one, two or three unit residential properties, for example, the municipality may consider similar properties (based on size and location) that sold in the same neighborhood in a certain period. For other property, such as office buildings, factories, stores and hotels, the municipality may use the property's income earning potential and expenses to calculate its market value.
In general, the assessed value tends to be lower than the appraised fair market value of a property.