What is the assessed value of a home?
When calculating mortgage payments, most people focus on principal and interest. After all, those two expenditures make up the largest share of your housing costs. But they’re not the only costs that are baked into your payments.
Property taxes are usually included in your monthly statements, with a portion of your payment going to escrow. The amount you owe can vary from year to year based on the assessed value of your home. Contrary to popular belief, your house’s assessed value may significantly differ from the appraised value or fair market value of your property. And that can mean you’ll owe more — or less — than you realize on your property taxes. On top of that, counties often use their own assessment ratios, so assessed values can vary across the nation.
Given these stakes, it’s a good idea to brush up on assessed home values to see how they’re calculated, what they mean for you as a homeowner and how you can find your home’s true value.
What is tax-assessed value on a home?
When calculating property taxes, county governments look at the value of your home. The general idea: The more your property’s worth, the higher your taxes will be. But they don’t pull up your latest home appraisal or look at comparative market analysis (CMA) reports to get that info. They conduct their own property value assessments to determine how much homeowners owe on property taxes. Although the process is fairly uniform across the nation, every county and municipality will use its own assessment ratio to measure the taxable value of a home. That means assessment values are likely to change pretty significantly going from one part of the country to another.
Assessed value definition
The assessed value of your home is the approximate property value that your local government uses to determine your property taxes. This figure is not necessarily the same as your appraised value or fair market value, as county assessors use different formulas to calculate home values.
As such, it’s fairly common for homeowners to feel blindsided by real estate assessments. In some cases, the government’s property value estimate can exceed your lender’s appraisal or your real estate agent’s CMA, which could mean owing more on your property taxes than you might expect.
It’s important to note that property assessments are not the only factor local governments use to decide your property tax. Assessed value is a major one, though, and you can expect your taxes to go up along with your home value.
How is assessed value calculated?
While the exact formula used to determine your house value can vary from state to state — and often, county to county — most tax districts follow the same basic approach.
- The county assigns an assessor to review your property and come up with a house value estimate.
- The assessor looks at the specific features of your home: lot size, square footage of your house and any extra amenities that might impact your home value. That may require an on-site inspection, but not often.
- The assessor also analyzes your local housing market for comparable properties and to get a sense of the overall state of the real estate market in your area.
- The assessor uses the info to calculate your fair market value, but we’re not done yet.
- Districts then calculate your assessed value as a percentage of your market value using the county’s current assessment ratio. Illinois’ Cook County, for instance, defines assessed property value as 10% of the fair market value.
Property assessments are rarely conducted on an annual basis. Most counties assess home values every few years. In the case of Cook County, homeowners can expect a three-year window between assessments.
Keep in mind, the above steps only apply to residential purchases. Tax-assessed value formulas for commercial real estate are much more complicated, taking into account income generated by the property along with other factors.
Assessed value vs. market value: What’s the difference?
Fair market value, broadly speaking, estimates how much your home is worth on the real estate market. In other words, if you were to sell your house right now, how much could you reasonably expect to get for it?
When comparing a property tax assessment vs. market value, it’s worth remembering that the former usually involves more in-depth analysis. With fair market value, real estate agents typically look at comparable listings that have recently sold in the area to get a sense for what people are willing to pay. Let’s put it this way: It’s more art than science.
In contrast, government assessors attempt to stick to some kind of formula in the interest of fairness and uniformity. Even if those formulas vary from state to state or county to county, there is a repeatable method to their approach. Remember, assessed value is usually a percentage of the property value. And that percentage is likely to change depending on what state and county you live in.
Also, as we noted earlier, assessments don’t happen every year. You could very easily have a tax-assessed value that’s three or four years old. That figure wouldn’t necessarily reflect recent housing market conditions, for better or worse. Whereas you could ask a real estate agent to produce a CMA report with an up-to-date fair market value.
Beyond that, though, real estate agents and assessors often weigh many of the same factors when deciding how much a house is worth:
- House size
- Property size
- Property location
- Number of bedrooms
- Number of bathrooms
- Local market conditions
- Heating and cooling systems
So, there is plenty of common ground between the two. However, each serves its own purpose: one to determine your property taxes and the other usually to figure out a reasonable asking price or purchase offer.
Assessed value vs. appraised value: How they stack up
Appraisals play a completely different role altogether. Lenders use home appraisals to confirm that any piece of property a borrower is attempting to take a mortgage out on actually is sufficient collateral to secure the loan terms requested. That is, if you were to default on your mortgage, could your lender recoup its losses by foreclosing on the property?
Lenders request appraisals any time someone applies for a home loan, whether it’s for a new purchase or to refinance a mortgage. Because home appraisals function as a way to protect lenders from risk, they can be more thorough than a house assessment or CMA report. Often, appraisers will require an on-site inspection of the property, whereas that may not be the case with a government assessor.
How to find assessed value of property
Given all of this info, you’re probably thinking, “How much is my property worth, and what does that mean for my taxes?” It’s unlikely you’ll be able to find your assessed value on your county government website. However, you should be able to contact your local Assessor’s Office and receive copies of your property’s assessment records.
Don’t want to wait for county officials to give back to you? There are other ways to get an approximate idea of your assessed home value. First, use an online home valuation tool to get an idea of what your fair market value looks like. Then, apply your state or county’s assessment ratio to estimate your assessed value.
We can’t stress enough that assessment ratios can vary significantly across state lines. You might recall that Cook County, Illinois, calculates 10% of the market value. But in Massachusetts counties, your assessed value will equal 100% of your fair market value.
What should you do if your assessed value is high?
Many people see a high property assessment, get upset and then … not really do anything about it. It may seem fruitless to try and argue against property tax assessments, but you actually have a fair amount of opportunity to make your case.
Here are a few steps to consider taking if you feel that your tax-assessed value doesn’t accurately reflect how much your house is actually worth:
3 ways to address high assessed values
- Request a reassessment
- Check for inaccuracies
- Look at local comps
1. Request a reassessment
Assessor Offices don’t have the resources to repeatedly review the same property, but you may be able to schedule a reassessment from time to time.
2. Check for inaccuracies
Your local county office should have your property tax card on file. Take a look at it to see if there are any errors that might impact your assessed value. Lot size, home size, number of bedrooms and even the dimensions of each room could be off. If that’s the case, come back with some documentation to prove your case and ask for your assessment to be amended.
3. Look at local comps
Assessors usually factor in similar homes when calculating your house estimate, but that doesn’t mean it’s always an apples-to-apples comparison. They may see two homes with the same number of bedrooms and bathrooms, but overlook that one has a bigger garage or more structures on the property. Those discrepancies could help lower your tax-assessed value.
Local governments rely on property assessments to help determine how much homeowners owe in property taxes each year. The exact formula assessors use usually changes from state to state, so it’s good to know how your home value is calculated. In general, higher property values means more taxes.
It’s easy to conflate your home’s assessed value with its appraised value or fair market value, but each figure is actually pretty distinct and serves its own function. Think of your property assessment as a tax assessment, because the only time it’ll come into play is to figure out your property taxes.
Home valuation tools — plus some back of the napkin math — can help you get a rough estimate of your assessed value, but there’s really no substitute for an official government assessment. Reach out to your local Assessor’s Office for more details about your assessed property value. And if you want advice regarding your property taxes, it’s always a good idea to speak with a qualified tax advisor.
Guaranteed Rate does not provide tax advice. In no way is any tax content contained herein to be construed as financial, investment, or legal advice or instruction.
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