A property's assessed value is the dollar value a tax authority assigns to a property for the purpose of calculating the property taxes due. The assessor bases this value on a home's fair market value, which is based in part on comparable home sales and recent inspections of homes in the area. Often, an assessed property value is less than the fair market value of the property. It might also be less or more than the home's market value or its appraised value.
The assessed value of your home helps determine how much you'll pay for property taxes, so it's an important figure to understand as a homeowner.
Read More: How to Calculate Assessed Home Value from Taxes Paid
Fair Market Value of a Property
A property's fair market value is the price a consumer would pay for the property, assuming she bought it on the free and open market. Several assumptions form the basis of a property's fair market value:
- Both buyers and sellers are aware of the asset's value.
- Buyers and sellers act in rational ways that serve their personal interests.
- Neither the buyer nor the seller experiences pressure to enter into a purchase agreement.
For these reasons, a fair market value may be different from an assessed value or appraised value.
Appraised Value of a Property
An appraisal is often ordered by a lender to determine the value of the property for issuing a mortgage loan. Appraisers are specially trained professionals who work on behalf of lenders to ensure the lender is not overextending itself by loaning you money to buy the home. If an appraiser devises a property's value based on his experience and training, it's an appraised value.
The appraised value may or may not have any relationship to the sale prices of similar homes in a certain area or the appraised value of other properties. Consequently, an appraised value may be different from a fair market value or assessed value.
Market Value of a Property
A property's market value is a stated price for a property in a given market. In this case, no assumptions can be made as to the origin of the price relative to that of other assets offered for sale in the same market. What's more, no assumptions can be made as to how reasonable or fair the market value is relative to similar properties. On the contrary, a property's market value may be vastly different than its appraised value or assessed value.
Determine the Property's Assessed Value
A home's assessed value, which is calculated for tax purposes, is a percentage of a home's fair market value.
Your city or county assessor will mail you a notice of your property's most recent assessed value. Review the notice to locate the property's assessed value for tax purposes according to the local government's most recent annual assessment. For instance, you might receive a notice in June or July to alert you of your home's assessed value, such as $400,000 as of January 1 of the same year.
Some counties use what's known as an assessment rate to determine a property's assessed value. They typically multiply this assessment rate, which is some percentage less than 100, by the property's fair market value. To find your county's property assessment rate, review your most recent tax bill. The statement will refer to an assessment rate, such as 80 percent.
Billie Nordmeyer is an IT consultant of 25 years standing. As a senior technical consultant for SAP America and Deloitte Touche DRT Systems, a business analyst, senior staff, and independent consultant, Billie has worked across the retail, oil and gas, pharmaceutical, aeronautics and banking industries. Billie holds a BSBA accounting, MBA finance, MA international management as well as the Business Analyst and Software Project Management certificates from the Cockrell School of Engineering at the University of Texas at Austin.