The value of your home is more of a general moving target than a fixed and exact figure. How much the government thinks it's worth may be different from the value your mortgage bank gives it, and a negotiated sales price might bear no resemblance to either number. Most of the time it doesn't matter, since you only need to have an exact number when buying or selling your home -- or when the government applies property taxes. If you're like most homeowners, this last case will occur the most often and make the biggest difference in your quality of life.
Fair Market Value
To understand assessed and taxable values, you first have to understand fair market value. This is the price you can expect to sell your home for if you put it on the market today. Fair market value is based on the value of similar properties in the area and aspects specific to your home like its size, style and age. It can also take into account the most recent sale value, adjusted for average changes in local housing prices, and any improvements you've made.
Most tax districts, whether it's a state or local government, employ real estate appraisers to regularly assess the value of property within the district. The appraiser's goal is to arrive at an assessed value as close as possible to the fair market value of the property -- the price you might reasonably assume to sell for at the time of the appraisal.
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The taxable value of your home is the amount the tax district will use to determine your annual property tax. For most districts, the taxable value equals the assessed value. Some areas, however, use a taxable value that's lower than the assessed value using a system that's similar to the standard deduction on your income tax. This might be expressed as a percentage of the assessed value, or as the assessed value minus a fixed sum.
Why It Matters
If the assessed value of a property where you live equals the taxable value, the difference doesn't matter. If your district does discount the taxable value, it can add up to serious money over the years you live in your home. For example, a $200,000 home in a district with a 1.5 percent property tax rate means paying $3,000 a year. If the taxable value was 10 percent lower, the tax would be just $2,700 a year -- a savings of $6,000 over the course of a 20-year mortgage.
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