NEW YORK (CNN/Money) - We're considering buying a home that has an assessed value of $120,000 for tax purposes and an asking price of $140,000. How can we determine what the house is really worth?

—Sharon, Trinity, North Carolina

The first thing I can tell you is that I wouldn't rely on either the assessed value or the asking price.

When a home is assessed for local real estate taxes, the assessor typically makes some estimate of market value and then applies a tax rate to come up with a real estate tax bill.

But assessments involve a lot of subjectivity and they can vary significantly even for similar homes in the same neighborhood. That's why there's a thriving business for services that help people challenge their assessments in hopes of lowering their property taxes. (For more on this topic and what you can do if you think your home's tax tab is too high, click here.)

As for asking price, well, that's nothing more than what the owner of the house hopes a buyer will pay. In some cases, this asking price may be realistic, but the price could represent nothing more than wishful thinking. And it's always important to remember that a bit of negotiation and haggling is usually built into asking prices.

So how, then, do you determine what a house is really worth? The only real way to tell is to do (or, more likely, ask a local real estate agent to do) what's called a comparative market analysis.

Such an analysis would have several parts. First, you would look at what homes similar to the ones you are considering have sold for over the past six months or so. By similar, I mean homes in the same neighborhood in the same condition with roughly the same square footage and the same number of bedrooms and bathrooms.

You may not be able to find identical matches, of course. But the homes should be of comparable size and quality.

Once you've done that, you then want to look at the listing or asking price of similar homes. Again, the match ups may not be exact, but the idea is to see what sellers of comparable homes are now asking.

If the asking price of the home you're considering is more than a couple of percentage points higher than similar ones in the area, you've got to ask yourself whether there's something about the house that justifies the difference.

Was it recently remodeled? Does it have a larger lot than the other homes, have higher-quality construction, is it closer to the train station?

Houses aren't interchangeable like shares of a company's stock. One may have unique characteristics that raise or lower its market value, although, ultimately, it's the location that largely determines a house's price and puts a cap on what a home will fetch.

Finally, you want to get a sense of whether the housing market is growing stronger or weaker. Are houses staying on the market longer before selling than they were a few months ago, or is the time on market shrinking? Are sellers getting close to the asking price, or are they having to discount heavily from the listing price? The stronger the market, the less negotiating leverage. A weaker market, on the other hand, should give you the opportunity to bargain for a lower price.

To sum up, then, the value or economic worth of a house is really nothing more than what an informed buyer would pay for it at any given time. That certainly leaves room for ambiguity -- two informed buyers may not agree precisely on what they'd pay for the same house.

But by doing the sort of research I've outlined, you should at least be able to tell whether the asking price for a particular home falls is within a reasonable range of its likely market value. If you don't do this sort of research, on the other hand, then you run the risk of being an uninformed buyer who ends paying more than the house is really worth.

Walter Updegrave is a senior editor at MONEY Magazine and is the author of "We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World."