What is assessed value and how is it determined?

Owning a home comes with a lot of responsibilities and costs, from mortgage payments and maintenance costs to insurance and property taxes. Most of those costs are straightforward. Property taxes … not so much.

Property taxes are based on your assessed value, which you might think simply means the value of your home. But there’s more to it. Assessed value is not necessarily the same as your home’s market value or its appraised value.

So, let’s explore what assessed value is, how it’s calculated, how it affects your property taxes, what you can do about changing it if you disagree with it, and what it means for your bank account.

What is assessed value?

Simply put, assessed value is the dollar amount that your local assessor assigns your property to calculate your property taxes. It’s the local government’s determination of your home’s taxable value. They’ll use this figure in the formula they use to calculate your property taxes – these formulas change from state to state and county to county.

It’s important to note that your home’s assessed value is not the same as your home’s market value. The market value is how much you could currently sell your house for if you put it on the market. Further, just as local governments have different formulas for property tax computation, states have different calculations for assessed value.

Let’s look at a real-world example from Georgia. In Georgia, your property’s assessed value equals 40% of the fair market value. So, if your property’s fair market value is $500,000, its assessed value would be $200,000. This lower figure would be used in your local government’s formula to calculate your property taxes.

How is assessed value determined?

While different jurisdictions have different methods of assessing the value of your property, there are some common factors assessors use.

Comparable property sales: Assessors are usually very familiar with the local market. They use this knowledge to research recent sales of houses like yours, in your neighborhood or community, to get a sense of your home’s fair market value.

Property size: Part of their assessment will be the size of your property. That includes square footage of the lot and home, livable space, and more.

Location: Is your home in a coveted school district? Does it have a view? Is it in a quiet neighborhood? As is true in real estate, location, location, location matters in your home’s assessment.

Improvements: If you’ve made upgrades or major repairs that increase the value of your home, the assessor will take that into account. Because this could raise your home’s market value, it could also raise your assessed value.

Market conditions: If your area is experiencing rising home values, it could mean that your assessed value rises with them. Assessors take this into account.

Another major factor in your home’s assessed value is what’s known as the assessment ratio. This is a simple formula used by assessors, set by states, to determine your assessed value, based on the market value. The assessor determines your home’s fair market value, then applies this ratio to determine your assessed value. Each state has its own ratio.

Here’s an example using actual state assessment ratios for a home of $400,000 to see how much they can affect your home’s assessed value:

Assessed value vs. market value vs. appraised value

You would be forgiven for thinking that your home has one value. In fact, it has three, each defined its own way and with its own purpose. Here's a breakdown of the difference between your property’s assessed value, market value, and appraised value.

Hopefully that clears up any confusion. A common misconception is that your appraised value is the market value of your home – in a state where the appraised value ratio is 40% that can be quite shocking.

How assessed value impacts property taxes

Now for some more math. Your assessed value is used in another formula – which varies by municipality – to determine your property tax. This formula uses what is called the millage rate, often called the mill rate.

The word millage is from the Latin word “millesimum,” which means “thousandth part,” or 1/1,000. So, the millage rate is the amount per thousand a property owner pays in property tax. One mill equals $1 per $1,000.

And yes, it’s confusing. So, let’s clear it up with a real-world example.

The city of Savannah, Georgia, had an assessment rate of 40% and a millage rate of 12.20 in 2022. So, let’s say you owned a home with a market value of $200,000. Here’s how your property tax would be calculated:

$200,000 x 0.40 = $80,000 taxable value.

Since 1 mill = $1 per $1,000 of taxable value and Savannah has a mill rate of 12.20, it means that the taxable value is taxed at $12.20 per $1,000. So:

80,000 / 1,000 = 80 x $12.20 = $976 in property tax.

So, if your assessed value goes up, your tax bill could go up as well. In fact, if your market value goes up and they reassess your property, it could go up too.

How to find your property’s assessed value

It’s important to know your property’s assessed value. You can find it at your local assessor’s office or in their online database.

Each year, you’ll get an assessment notice that will include your assessed value. It’s a good idea to check this carefully. Mistakes do happen and you might not agree with the assessed value.

Can you dispute your assessed value?

Yes, you can appeal your assessed value, but you will have to do more than merely make a phone call and complain. Here’s a typical process you can follow:

1. Review your assessment notice: Check to ensure that the details of your property are correct, such as lot size, improvements, and square footage.
2. Gather evidence: This is where you build your case. Collect comp sales of similar homes to yours in your area. This might also include getting a home appraisal, although that will cost you money so make sure it’s worth it. Or, if you found errors in step one, make a list.
3. File an appeal: Submit an official appeal with your assessor’s office. Pay close attention to procedures and deadlines as these change from municipality to municipality.

Factors that can change your assessed value

The assessed value of your home can change over time. Here are some common factors that can affect it.

• Home improvements: Adding a bedroom, remodeling the kitchen, installing a pool, or anything that adds value to your home can raise the assessed value of your home.
• Market fluctuations: If the home prices in your area increase, or fall, it could change the assessed value of your home. This is because if your home is reassessed, part of the process will include comps.
• Property damage: Fire, flood, or other natural disaster damage can lower your assessed value. Things that hurt the appraised value of your home could also bring down your assessed value.
• Zoning changes: Sometimes zoning changes can impact the assessed value of your property because often commercial and residential properties are assessed with different formulas.

For all these reasons and more, it’s vital to keep track of your property’s assessed value each year.

FAQ about assessed value

Is assessed value the same as market value?

No. The assessed value of your home is the value your local assessor’s office assigns it for property tax purposes. The market value is the amount you could sell your home for.

How often is property assessed for tax purposes?

This depends on your local jurisdiction. Some areas reassess annually. Others reassess every few years, or when something triggers the need, such as fluctuations in the market, zoning changes, infrastructure improvements, and other events.

Can home improvements increase my assessed value?

Yes. Major renovations like adding bedrooms or bathrooms, remodeling kitchens, and other improvements can increase your property’s worth, and therefore your assessed value.

What is a homestead exemption, and how does it affect assessed value?

A homestead exemption is a tax break you get for claiming your property as your primary residence. It reduces the portion of your assessed value that’s open to taxation, and it varies by state. For instance, if your assessed value is $100,000 and your area has a homestead exemption of $20,000, your property taxes are calculated using $80,000.

Does assessed value affect my mortgage?

Yes, but indirectly. Your mortgage terms are based on your home’s market value, sale price, and appraisals, not its assessed value. However, since property taxes are often included in your monthly mortgage payment, they could affect it.

The bottom line: Assessed value matters to homeowners

Keeping track of your property’s assessed value might not have been on your list when you bought your dream home, but the fact is that it’s important. Your home’s assessed value determines your property taxes and, in most states, that’s no small cost.

Understanding your home’s assessed value, how to ensure it’s correct, and what to do if a mistake is made is part of smart homeownership. It also pays off in either peace of mind or real savings. If you’re ready to start looking for your dream home, get in touch with the Home Loan Experts at Rocket Mortgage to explore your financing options.