What Does Assessed Value Mean And How Is It Determined?
Ashley Kilroy4-minute read
November 09, 2023
When you sell your home, you’ll likely have it assessed before putting it on the market. A home’s assessed value determines its property tax bill and influences the amount for which a house will sell.
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. Let’s uncover everything you need to know about your home’s assessment.
What Is Assessed Value?
The assessed value, or tax-assessed value, is a property’s determined valuation to calculate the appropriate property tax rates. An assessment considers sales of similar homes, square footage, current 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.
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 exemptionincludes 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 homeowners with disabilities, senior citizens and qualifying veterans.
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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
- 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 The Assessed Value Of A Property
An assessor finds 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 helps real estate professionals estimate the value of your home by comparing it to similar properties that have recently sold in the area. The tool helps determine a home’s assessed value to ensure that a fair and accurate assessment is made.
How To Use The Assessed Value To Calculate Property Taxes
Once the assessor determines your home’s value, this number can be used to calculate your property taxes. While homeowners aren’t responsible for calculating property taxes, it’s an important metric to understand if you decide to sell your home and move to a new area.
Another factor that’s 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 is equal to 1/10 of a penny or 1/1,000 of a dollar.
The best way to find the mill rate in your area is by checking with your local government or tax authority.
Property Tax Calculation Example
Different municipalities will use different formulas for calculating 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
Let’s plug in an 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 and make monthly payments.
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Assessed Value Vs. Market Value
You’ll find several differences between market value and assessed value. Fair market value refers to a home’s determined selling price under current market conditions. Assessed value is informed by government tax assessors to decide how much a new homeowner can expect to pay in property taxes. Fair market value and tax-assessed value both help establish a home’s worth.
Assessed Value Vs. Appraised Value
Appraised value is another estimation of a home’s worth, and it’s different from assessed value. A home’s appraised value is essentially an expert opinion of its fair market value. 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.
Some of the factors considered when determining a property’s appraised or fair market value are:
- The general condition of the property
- Internal characteristics like square footage, number of rooms, energy efficiency, etc.
- Curb appeal
- Real estate comps, or comparable properties in your area
- Current market conditions, like whether it’s a buyer’s or seller’s market
- Location of the property and nearby amenities
A homeowner can 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: A Home’s Assessed Value Helps Determine Your 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 because the market value of the property can change based on both the market 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 the amount you’ll owe in property taxes every year.
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