How to Calculate the Assessed Value of Your Home

By: ROS Team

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A popular question among homeowners deals with their home’s assessed value:  why is the property assessed at a lower value than the asking price? It is possible to calculate the assessed value of your home, and that starts with understanding the difference between the assessed value and the appraisal value of the home.

What is Assessment Value?

In most cases, the assessment value is used to inform the homeowner how much they will owe in property taxes.

Those who still owe their lender for a home loan will see that their property taxes are included in the total monthly mortgage amount. On the other hand, homeowners who have paid off their home loans may no longer have a mortgage payment, but they are still responsible for paying taxes based on their home’s assessment value.

Assessment Value

How Does the Assessment Process Work?

The assessed value of a house is a component used to calculate a homeowner’s property taxes. Homes are assessed by a local tax assessor. The house’s value is evaluated in one of three ways: based on the home’s market value; the home’s appraised value; or a percentage of either the market value or appraised value.

To better understand a home’s assessed value, we first must define the terms “market value” and “appraised values.” Market value is how much your home could sell forgiven a willing buyer. In most states, you can only assess your home at market value if it is residential property. Generally, homes have a lower assessment value than the market or appraised value. Tax assessors determine whether or not the estimate is accurate.

Assessment Process Work

If the assessment is inaccurate, assessors use the assessment rate to calculate the assessed value. The assessment rate is a percentage that considers factors that could influence the prices of houses in an area. Factors such as present market conditions, neighboring home prices, maintenance costs, and property devaluation could make home prices fluctuate.

Comparing prices of neighboring properties and the property’s sales history is a technique used by tax assessors when evaluating the property’s value. An inaccurate appraisal means that the home gets a low assessment value, but the property’s evaluation can also be higher than the suggested market value, which could result in higher property taxes.

What Determines the Assessed Value of a Home?

Tax assessors collect information like the value of nearby properties and the sales history of your property to accurately assess the value of a home. This is known as a market approach because selling prices of similar properties are compared against one another to evaluate your home’s value. The assessment rate can also be determined by using this approach. In that case, the home’s market value and assessment rate are multiplied to determine the assessed value.

An assessor may consider multiple factors when calculating a home’s appraisal value, but the assessment rate should be similar for all properties located in the same tax district.

the Assessed Value of a Home

Assessors use online tools to calculate the assessment rate and market value. Although this algorithm has provided reliability overall, it can still provide inaccurate assessment valuations.

The assessed value is directly proportional to the property’s taxes – the higher the assessed value, the more you’ll pay in property taxes. The assessed value also depends on the economic health of the neighborhood. Troubled areas get assessed at a lower value because of the lack of economic growth, while areas with bustling economies have a higher assessed value.

These values are public knowledge, so you can access them however you view other public property records. Having this information as a prospective buyer helps you when comparing a home’s asking price to its assessed value.

How to Calculate the Assessed Value of Your Home

Consumers require two things to evaluate a home: the market value and the assessment rate. However, there is another way in which homeowners can determine their property tax assessment, and it’s by using the following formula:

Assessed Value = Market Value x (Assessment Rate/100)

This calculation will determine the assessed value of the property based on the home’s market value and the determined assessment rate. If you are not sure about the market value of your property, the appraised value can be used instead.

You can hire a professional appraiser or use any of the free calculation tools on banking and real estate sites to determine an appraised value. You can find your assessment rate on your county’s website, or contact your tax assessor’s office.

Suppose you want to buy a house that has a market value of $200,000, and you want to know the home’s assessed value. You’ll first need to contact the tax assessor for the assessment rate. For example, you can assume the assessment rate is 90%. You could then determine the estimated assessed value using the formula above:

Market Value = $200,000 x (90/100) =  $180,000

The tax assessor can also determine the assessed value by modifying the above calculation like this:

Assessed value = Property Tax Bill multiply (100/ Tax Rate)

Let’s suppose you want to know the assessed value of your property. Your property tax bill is $1,800 and the tax rate of your county is 1%.

Property tax bill = $1,800 x (100/1)

Assessment Rate = 90%

Assessed Value = $180,000

When is the Property Assessment Performed?

There is no fixed time for performing the assessment, but in most cases, the house assessment is completed by the local tax assessor’s office every five years. However, the assessment frequency can vary depending on where you live.

Property Assessment Performed

How Does the Appraisal Process Work?

Compared to the assessment process, the appraisal is a bit more intense. You must have the property appraised if you’re going to refinance or buy a house. This is because the appraisal will provide the exact fair market value of the property and will provide the lender with a prospective home loan amount.

An appraisal considers many more criteria than an assessment; these criteria include:

  • The number of bedrooms
  • Roofing material
  • Window composition
  • Whether or not the house has a chimney
  • Construction materials used (e.g., marble countertops, hardwood floors, etc.)
  • Insulation type
  • Architectural style
  • Whether or not the house has a basement and if it’s finished
  • Location
  • Foundation type (e.g., concrete slab, crawl space, etc.)

Who Requests Appraisals?

Lenders usually ask the borrower to get an appraisal so that they can have a detailed understanding of the property before approving the loan amount. Lenders evaluate the borrower’s loan application based on the property’s market value, the overall condition of the house, and the surrounding area.

Difference Between Assessed Value, Appraised Value, and Fair Market Value

People often misunderstand assessed value, appraised value, and fair market value. The terms are often used interchangeably, but there are differences between them. We’ve broken down those differences for you below:

Assessed Value

  • What is it? Valuation of the property every year.
  • What does it do? Evaluates the property’s value for tax purposes.
  • Who calculates it? A tax assessor from the property’s municipality.
  • What are the factors that determine the value? Assessment rate, market value, and the appraised value.

Appraised Value

  • What is it? Most acceptable estimate of property’s worth.
  • What does it do? Assists in determining whether the home’s price is accurate, which is then used by lenders for loan purposes.
  • Who calculates it? A professional appraiser calculates the value after completing a thorough inspection of the property’s interior and exterior.
  • What are the factors that determine the value?

Sales and Value of Similar Properties
Present Market Conditions
Neighborhood
Size
Home Improvements
Construction Type
Utilities
Appliances

Fair Market Value

  • What is it? The expected price of a property on the market.
  • What does it do? Determines the value of a home.
  • Who calculates it? The seller and their real estate broker calculate the value.
  • What are the factors that determine the value?

Sales and Value of Similar Properties
Present Market Conditions
Neighborhood
Size
Home Improvements
Construction Type
Utilities
Appliances

As you can see, appraised value, assessed value, and fair market value all serve the same purpose – they determine a home’s value. But the meaning and purposes that they serve are different. For example, the assessed value is used for tax purposes while the appraised value is used by lenders when determining loan approval.

How to Challenge an Assessed Property Value

If you are convinced that your property has been valued inaccurately after receiving your annual property tax bill, you can contest the assessment by taking the following steps:

  • Inspect the information on the assessment report for accuracy. Pay particular attention to data related to your home’s square footage and the number of bedrooms. included in the information you should inspect.
  • If you can, compare your tax statement with your neighbors’. Report any inaccuracies to your local tax assessor’s office. You can also hire a property appraisal professional for around $450 to $550 to complete a property assessment.
  • If you are still not satisfied with your property valuation after inspecting all the data, call or meet with your local tax assessor to discuss your concerns and request another valuation assessment. You typically have up to 30 days to challenge the assessed value. But that will vary depending on where you live. You also have the option of appealing the assessed value to an independent board. You can hire a lawyer as well, but it is not required. However, you will have to pay a filing fee should you choose this option. Due to the high number of appeals, most appeal requests take up to a year to be heard by the board.

Final Takeaways

Although they’re similar, a home assessment is not the same as a home appraisal. The main reason for their differences lies in the process used to calculate them. As a buyer, it’s a good idea to become familiar with tax assessments and appraisals. If you find out that the house you want to buy has a higher assessed value compared to its appraisal value, you may be able to negotiate a lower sales price.