The assessed value of a home is a yearly estimation of your home’s worth, determined by your tax district’s municipal property assessor. Local tax officials use this value to calculate the property taxes you pay on your home each year. Learn more about how this value is calculated below.
What is the Assessed Value of a House?
The assessed value of a house is the dollar value assigned to a home in order to calculate its property taxes. A municipal property assessor is responsible for deciding the assessed value for every home within a given tax district. Some assessors work for a county or village, but most are employed by a town or city.
Whether you live within a city-based or county-based tax district, the assessed value of your home will be based on one of three figures: the market value, appraised value, or a uniform percentage of either. The market value is what your home would sell for in a free market, given a willing seller and an able buyer. The appraised value is the value of a home based on an appraiser's determination. Most states require a residential property to be assessed at market value. Typically, the assessment is lower than either the market value or appraised value. Assessors may conclude that market and appraisal values don’t accurately represent the home, so they use an assessment rate to calculate the assessed value.
Officials also review other relevant information such as neighboring property values and the sales history of the property to determine the assessment value. This estimate is generally made without actually inspecting the home, which can lead to an inaccurate valuation. If the assessed value is higher than the fair market value, the property has most likely been overassessed by the town, and the owner is probably paying too much in taxes.
The assessed value of a home usually lags in comparison to the market since the valuations are only adjusted annually, while market values can change multiple times per year. A home that has recently been resold tends to be closer to the assessed value than a home that has not sold in a long time. Depending on the area’s legal restrictions, most assessed values cannot increase more than a certain percentage each year.
What Determines the Assessed Value of a Home?
An assessor looks at information about your property and neighborhood, while comparing it to other properties in your area, to determine the assessed value. The assessor uses the market approach, which is a method to estimate the value based on the selling price of similar homes. This approach is used to find the market value of the property and determine the assessment rate. The market value and assessment rate are then multiplied to get the assessed value, as demonstrated below.
The assessment rate is a percentage of up to 100% that takes into account factors that could raise or lower the value of homes in a given area. These factors include current market conditions, other home values, maintenance cost, depreciation, home improvements, neighborhood, size, amenities and any other factors that the assessor deems important for an accurate valuation. The assessment rate is generally the same for every property in a given tax jurisdiction.
In many cases, assessors use an algorithm to determine the assessment rate and market value of a home by inputting general information about each property and comparing it to similar properties. This is generally used as a standard for all homes in the area, but can also lead to inaccurate valuations in individual cases.
The higher your assessed value, the more you’ll pay in taxes. Distressed areas tend to have lower assessed values due to the neighborhood quality, while areas with larger populations and more economic activity have higher assessed values. These values are public and are found in property records. When you consider buying a house, you can look up the assessed value and compare it to the asking price. However, the assessed value is only adjusted annually, and may not accurately reflect what a homeowner would sell at or what a buyer would pay for a home.
How to Calculate the Assessed Value of Your Home
In order to estimate the assessed value of a home, the consumer needs the property’s market value and assessment rate. There is a second approach that allows consumers to use their property tax bill and the real-estate tax rate of their county. The information can be inputted in the calculation below:
Assessed Value = Market Value x (Assessment Rate / 100)
The first calculation is based on the market value of the property and the determined assessment rate. The market value is multiplied by the assessment rate, in decimal form, to get the assessed value. If you are unsure of the market value of your property, you can get an appraised value by hiring a professional appraiser, asking your local officials, or using the calculators provided on real estate and banking sites. To find your assessment rate, go to your county’s website or contact a city official.
Let’s say you want to buy a house with a market value of $150,000, and you want to figure out the assessed value. You decide to call the department of taxation in your town to figure out the assessment rate, which is 90%. You can multiply these two values to find the assessed value, which gives you $135,000.
|Market Value = $150,000
Assessment Rate = 90%
|$150,000 x (90/100)
Assessed Value = $135,000
The second calculation uses your property tax bill and the tax rate for your area. You receive this bill from the department of finance and taxation in your county about a month before your taxes are due. The tax rate is determined by the combined assessed value of the properties in the area, and is found by visiting your county’s website or calling your county’s department of finance or taxation. Using these values, you can divide the number from your property tax bill by the tax rate to get the assessed value of your home.
Assessed Value = Property Tax Bill x (100 / Tax Rate)
Let’s assume that you own a home and want to know its assessed value. You receive the property tax bill and it's to $1,350. Then you check your county’s website to find that your tax rate is 1%. With these two values, you can now divide the bill of $1,350 by 1%, giving you $135,000.
|Property Tax Bill = $1,350
Tax Rate = 90%
|$1,350 x (100/1)
Assessed Value = $135,000
Differences between Assessed Value, Appraised Value, and Fair Market Value
Assessed value, appraised value and fair market value are often used interchangeably, despite the fact that they are quite different. Below, we have compared these three terms to give you a better understanding of what each value means.
Fair Market Value
|What it is
|A yearly estimation of a property’s value
|An expert’s best estimate of what a property is worth
|The price a property would be expected to sell for in a free market
|What it does
|Determines the value of a property for tax purposes
|Helps determine whether the free market price is appropriate and is used for loan purposes
|Determines the cost of a home that a willing seller and able buyer agree to
|Who calculates it
|Prepared by a municipal property assessor
|Prepared by a professional appraiser, who must do a complete visual inspection of the interior and exterior
|Prepared by the seller or real estate company and negotiated by the buyer
|Factors that determine the value
Fair market value should not be confused with asking price. For a common example of appraisal forms, see Fannie Mae’s Uniform Appraisal Report for single-family homes.
As shown from the chart, assessed value, appraised value and fair market value are all used to determine a home’s worth, but have different meanings, purposes and calculation methods. The assessed value is calculated by a municipal property assessor and is recalculated each year to determine a property’s value, which is then used for tax purposes. In comparison, the appraised value is prepared by a professional appraiser to estimate a property’s worth, and is used for loan purposes as well as determining whether the market price is accurate. Lastly, the fair market value is the price a property would sell for in a free market. It's technically calculated by negotiations between a willing seller and an able buyer.
How to Challenge an Assessed Property Value
If you receive your property tax bill and feel that your property was not valued accurately, there are some steps you can take to contest the assessment.
First, check the data your local government has on your home, make sure each feature about the house is correct, including the size, the number of bathrooms, and all the other factors that determined your valuation. If you see errors, contact your local government to change the details. Otherwise, see if you can compare your tax bill with those paid by neighbors that have homes similar to yours. If this isn't an easy option, you can have your property appraised by a professional for $400 to $500, and compare the result against the assessed value.
If you’ve checked all the data, and still believe that your property was assessed incorrectly, call or visit your local assessor’s office to challenge it to request a second valuation. You generally have up to 30 days to challenge the bill, though the exact timeframe depends on your local government. If your second review is unsuccessful, you can appeal to an independent board, with or without a lawyer. However, a filing fee may be required and your appeal could take as long as a year, especially in a jurisdiction with a high number of appeals.