Assessed property value is determined by the government tax office in the county where the property is located. The value used for tax assessment purposes is not the same as the market or true value of the real estate.
Tax assessed value is determined by the taxing authority based on a formula to determine the amount of property tax an owner should pay. Reduction of tax due from assessed value calculations can occur from different exemption types, and the most common exemption is the customary homestead exemption offered by most municipalities. Other exemption types are for those over age 65, surviving spouse and disabled veterans.
The true or market value of real property is the amount that a seller would receive from a buyer in the real estate marketplace. Determination of true property values usually occur by a combination of a real property appraisal along with comparable sales in the area. Appraisals are detailed documents prepared by professional appraisers to determine true market value. Comparable sales or market analysis are usually created by real estate professionals to assess market conditions to help determine property value.
Estimated True Value Ratios
Tax assessors derive the estimated fair market value of a home by dividing the assessed value of the property by the average assessment ratio. Many municipalities calculate the average assessment ratio to equal to the assessed value of all property that is taxable in a municipality divided by the equalized true property value. Some municipalities use a predetermined ratio instead of an average assessment ratio to create assessed values for tax purposes.
Assume a municipality has an average assessment ration of 0.30. A homeowner with a $100,000 home determines assessed value by multiplying 0.3 times $100,000 for tax assessed value of $30,000.
- The Free Dictionary: Assess
- Board of Tax Assessors: Homestead Exemptions
- The Free Dictionary: Fair Market Value
- City of Milwaukee: Assessed vs. Fair Market Value on Your Tax Bill
- Internal Revenue Service. "4.48.6 Real Property Valuation Guidelines." Accessed April 10, 2020.
- State of New Jersey. "Property Tax." Accessed April 11, 2020.
- Internal Revenue Service. "Topic No. 151 Your Appeal Rights." Accessed April 11, 2020.
Mary Frazier began writing in 2011 for various websites and has over 20 years of experience as a bank vice president and senior trust officer. Frazier is a Certified Trust and Financial Advisor, holds a Bachelor of Arts in economics from the University of North Florida and holds a Master of Science in finance from the College for Financial Planning.