MARKET vs. ASSESSED VALUES The process that county assessors use to determine the value of real property was established by Proposition 13. When real property is purchased, the county assessor determines its assessed value, which is typically equal to its purchase price or “acquisition value.” Each year thereafter, under Proposition 13, the property’s assessed value increases either by 2% or the rate of inflation, whichever is lower. This process continues annually until the property is sold. In other words, a property’s assessed value resets to market value (what a willing buyer would pay for it) when it is sold. In most years, under this assessment practice, a property’s market value is greater than its assessed value. This occurs because assessed values may only increase by a maximum of 2% per year, while market values tend to increase at a higher rate. Therefore, as long as a property does not change ownership, the assessed value and property taxes are predictable from one year to the next. Source: California Legislative Analyst’s Office Market Value Can Exceed Assessed Values* * This graph is a hypothetical example of the difference between market value and assessed value. It is not representative of the market as a whole nor demonstrative of a particular property. 12