Why is the assessed value of real estate lower than its market value?

The logic of the gap: Why less is often more

1. The precautionary principle and illiquidity

The most important reason for a low tax value lies in the nature of the property itself: it is illiquid.

If you own stocks, you can always sell some to pay your taxes. That's not possible with a house. You can't sell the bathroom to pay your wealth tax.

If the assessed value were identical to the maximum market value, short-term price spikes could lead to owners being unable to pay their taxes from their current income. A lower assessed value acts as a safety margin in this regard. The Federal Supreme Court has ruled that while the assessed value should aim for the market value, it must not exceed a certain range. In practice, the cantons often aim for target values of 70 to 90 percent of the market value. A low assessed value therefore guarantees that you are not taxed on " hot air," but on substantial value.

2. Static formulas meet dynamic markets

Another reason why a low tax value results is the calculation method.

• The market: The market price is determined by supply and demand. If three families in Zurich want a house, the price rises immeasurably.
• The tax office uses static formulas. It assesses the land value (price of land) and the current value of the building (construction costs minus depreciation).

Emotions, sentimental value, or the "hype" surrounding a neighborhood are hardly factored into these formulas. Because the formulas are conservatively designed, a low assessed value almost inevitably results . The "sentimental value" (affective value) that buyers are willing to pay is irrelevant for tax purposes. A low assessed value ignores these subjective premiums.

3. The time factor and revision cycles

Property prices change daily. Tax laws are slow.

Most cantons only conduct a so-called "general reassessment" every 10 to 20 years.

• Example: If your canton conducted the last valuation in 2015, your tax value is based on the price level of 2015.
• Reality: Since 2015, real estate prices in many regions have risen by 30 to 50 percent.

As long as no new valuation takes place, the old value remains in the system. This "time lag" automatically results in a lower tax value compared to current market conditions. The longer it has been since the last valuation, the more pronounced the effect of a lower tax value appearing on your tax return.

4. Federalism and equal treatment

In Switzerland, the principle of equality before the law applies. A low tax rate helps to avoid injustices.

It is impossible for the tax office to inspect every house every year. Basing the tax on the purchase price would be unfair.

• Neighbor A bought his house 20 years ago.
• Neighbor B buys the identical house today for twice the price.

If neighbor B were taxed on the purchase price, he would have to pay twice as much wealth tax as A, even though the houses are identical. To prevent this, the authorities use standardized formulas that apply to everyone. Because these formulas are conservative, both benefit from a low assessed value . A low assessed value ensures that long-term owners and new buyers are taxed equally.

5. Impact on the imputed rental value

A low tax value often has a pleasant side effect: it keeps the imputed rental value in check.

In many cantons, the imputed rental value (the fictitious income you have to pay taxes on) is derived directly from the assessed value or is based on the same parameters. If the assessed value were identical to the exploding market value, your income tax burden would also increase massively. A low assessed value therefore protects you twice: with regard to wealth tax and often also with regard to income tax.

When a low tax value becomes a problem

It sounds paradoxical, but a low tax rate is not always advantageous.

• When selling: If you want to sell, buyers look at the market. An extremely low assessed value in the documents can confuse uncertain buyers ("Why is the house worth so little? Is there something wrong with the building structure?").
• Regarding financing: Banks are familiar with the system. They know that a low assessed value is normal. Nevertheless, they finance based on the market value (or purchase price), not the assessed value. However, if the assessed value is extremely low , banks will scrutinize the calculations more closely.

Creating transparency with modern tools

For laypeople, the gap between "what I paid" and "what the authorities say" is often difficult to grasp.

Technology can help here. Platforms like heyloft.ch offer support.

The digital assistant "Loft" on heyloft not only helps you determine the current market value but also puts it into context. It can help you understand whether the low assessed value in your municipality is within the normal range or whether it's based on an outdated valuation. Loft acts as an independent authority, explaining why market dynamics (supply/demand) deviate from the static tax logic. Anyone wanting to understand whether their low assessed value is plausible or whether a reassessment might lead to an unpleasant surprise will find guidance here.

Differences between the cantons

Since taxes are regulated at the cantonal level, the extent to which a low tax value deviates from the market value varies.

• Bern: The "official value" is deliberately kept very low here (often below 50-60% of the market value).
• Zurich: Here the value is adjusted more regularly , but a low tax value (approx. 70-80% target value ) remains the norm.

Find out what target tax rate your canton is pursuing. A lower tax value is therefore more "normal" in Bern than in a canton that has just carried out a reassessment.

Conclusion

The fact that the assessed value of real estate is lower than its market value is not an administrative error, but a systematic safeguard. A lower assessed value prevents you from having to pay taxes on short-term price bubbles and protects you from having to sell illiquid assets simply to pay your tax bill. It is based on caution, standardized calculations, and often outdated valuations.

enjoy this "discount" with caution. Be aware that the lower assessed value can be adjusted during renovations or a cantonal general review . It's worthwhile not just to file the tax assessment notice, but to check the valuation.

If you want to know how big the gap really is between your official value and the actual market potential of your property, Loft offers you independent data analysis and creates clarity about the true value of your property.

Glossary

• Low assessed value: The fact that the official assessed value of a property is systematically lower than the current selling price for reasons of prudence and methodology.
• Market value (fair market value): The price achieved on the free market through supply and demand; it is dynamic and usually higher than the assessed value.
• Illiquidity: The characteristic of real estate not being quickly convertible into cash – a major reason for justifying the application of a low tax value .
• Imputed rental value: A fictitious income for the owner's personal use of the property, the amount of which is often dampened by a low tax value .
• Equality before the law: The principle that all taxpayers are treated according to the same standards , which is ensured through formula-based assessments (and thus often a lower tax value ).