What does assessed value mean and how is it determined?

When you sell your home, you’ll likely have it assessed before putting it on the market. The assessed value of a home determines its property tax bill and can influence its sales price.

Even if you’re not selling a house, every homeowner should understand what a home’s assessed value is, how it’s determined and the implications of a property assessment.

What is the assessed value of a home?

The assessed value, or tax-assessed value, is by definition a property’s determined valuation to calculate the appropriate property tax rates. An assessment considers sales of similar homes, square footage, real estate market conditions, and home inspection findings in its final determinations.

If you’re selling a property, the tax-assessed value is the most widely accepted dollar value of your home. It’s also the most stable indicator of a home’s worth.

Why is assessed value important?

If you’re a prospective buyer, knowing the assessed value of different homes you’re interested in purchasing can give you a better sense of the amount you’d have to pay in annual property taxes at each location. You could also possibly use assessed value to negotiate a lower sales price.

If you already own a home, knowing its assessed value can be part of your yearly financial planning so you don’t end up owing more in property taxes than you anticipated.

Property tax and assessed value

The assessed value is used in determining property taxes. Depending on where you live, a municipal or county tax assessor will perform a property value assessment and local tax officials will calculate the property taxes based on the assessed value. The higher your home’s tax-assessed value, the higher your property taxes will be.

Some municipalities offer tax exemptions to help property owners lower their tax bill. The homestead exemption includes property tax exemptions if the homeowner is the owner-occupant. For example, if the owner is the property’s resident and holds the property’s title, they’ll receive the homestead exemption. Other common tax exemptions include those for senior citizens, qualifying veterans and homeowners with a disability.

How often will the assessed value of a home change?

Not all governing bodies reassess properties on the same schedule. Some might perform reassessments yearly, while others will reassess at less frequent intervals. Contact the governing body responsible for assessing your home to find out how often they perform value assessments of your property.

What is a special assessment tax?

A special assessment tax is a type of surtax, or a tax levied on top of another tax, that helps fund improvements to a neighborhood or a property’s infrastructure. These projects may include:

• Road maintenance
• Street cleaning
• Landscaping
• Lighting
• Sidewalk paving
• Other recreational or public safety projects

Only homeowners living in a specific area, known as a special assessment district, are expected to pay the special assessment tax.

How to find assessed value of property

An assessor calculates the assessed value of your home based on the market value, the appraised value or a uniform percentage of the two. Municipalities and counties employ an assessor to determine the tax-assessed value of the homes in their jurisdictions.

While market value and appraised value are essential, an assessor may also use a comparative market analysis (CMA). A CMA assists a real estate professional in estimating the value of your home by comparing it to similar properties that have recently sold in the area. The CMA tool helps determine a home’s assessed value in the fairest and most accurate way possible.

How to find the tax value of your home

Visiting your city or county website is a good way to determine the assessed value of your home. In some cases, you can also multiply the market value of your home by the local assessment rate (which will vary by location).

How to use the assessed value to calculate property taxes

Once the assessor determines your home’s assessed value, this number can be used to calculate your property taxes. While homeowners aren’t responsible for calculating their property taxes, assessed value is an important metric to understand if you decide to sell your home and move to a new area.

Another factor often used to calculate property taxes is your area’s millage (or mill) rate. A mill rate is a tax you pay for every $1,000 of your property’s assessed value. One mill equals 1/10 of a penny or 1/1,000 of a dollar.

The best way to find the mill rate in your area is to check with your local government or tax authority.

Property tax calculation example

Not all municipalities use the same formula to calculate property taxes. Here’s an example of an equation your local tax assessor’s office may use to calculate your property taxes:

Assessed value ? (Mill rate ÷ 1,000) = Property tax bill

For example, if your property’s assessed value is $300,000 and the mill rate in your area is 10, the formula would look like this:

$300,000 ? (10 ÷ 1,000 = 0.01) = $3,000

According to this equation, you would owe $3,000 in property taxes every year. Remember, you typically won’t have to calculate your own property taxes. But if you’re getting ready to sell and move to a new house, understanding how a property’s assessed value plays a role in determining your tax bill can give you a better idea of how much you’ll owe in property taxes every year.

It can be especially helpful to know how much you’ll pay in property taxes if you plan to take out a mortgage.

Assessed value vs. market value

While both help establish a home’s worth, market value and assessed value have some differences. Market value – often used interchangeably with “fair market value” – is essentially the price a house is likely to sell for under current market conditions, and it provides guidance for a homeowner on how much they should seek to get for the sale of their house. A homeowner’s listing agent (if they’re working with one) will also often use the house’s market value as a barometer for how much money the homeowner should attempt to collect.

A home’s assessed value, meanwhile, serves a different primary purpose: It’s used, first and foremost, by your local tax authority to determine how much you should pay in annual property taxes. In other words, assessed value is how much your local tax authority considers your house to be worth.

In many localities throughout the U.S., a home’s assessed value is a portion or percentage of its market value. As a result, a property’s market value should exceed its assessed value.

Assessed Value Vs. Appraised Value

Appraised value is another estimation of a home’s worth, and it’s different from assessed value. Appraisal value is a measure of real property value, which is how much a piece of land and any structures permanently attached to it are worth at a particular point in time. Most mortgage lenders require a professional appraiser to perform a home appraisal before a buyer closes on a property. The appraisal serves to assure the buyer (and lender) that they aren’t borrowing (or lending) more money than the home is worth.

Factors considered when determining a property’s appraised or fair market value include:

• The general condition of the property
• Internal characteristics such as square footage, number of rooms and energy efficiency
• Curb appeal
• Real estate comps, or comparable properties in your area
• Current market conditions, such as whether it’s a buyer’s or a seller’s market
• Location of the property and nearby amenities

A home’s appraisal value is apt to change based on changes in the factors that influence it. This means that a homeowner may be able to increase their home’s value if they’re looking to sell. For example, you can upgrade your kitchen appliances or spruce up landscaping to raise the value of your home and appeal to potential home buyers.

The bottom line: Your home’s assessed value impacts your property tax bill

The assessed value of a property is determined by an assessor who examines how a property will be taxed. This differs from an appraised value because the assessed value won’t change drastically with the market. Assessed value also differs from the fair market value in that the market value of the property can change based on both market conditions and the appearance of the home.

If you’re thinking about buying a new home, knowing the property’s assessed value can give you an idea of how much you’ll owe in property taxes every year.

Are you ready to begin the home buying journey? Start an application with Rocket Mortgage^® today.