While specific laws vary by state, the general process of assessing real property is similar across the country. If you own real estate, it will be assessed, and that assessment will be used to determine your property tax bill. Every community operates under a set of guidelines that specify how the appraisal process should work. Frequently, the guidelines are set by the state and administered by assessors in the individual counties.
Use of Assessment
Assessments have one primary purpose: measuring your property's value for tax purposes. Property taxes are based on two different metrics -- the assessed value of the property and the tax, or mill, rate. Multiplying the property's assessed value by the mill rate gives you your annual property tax obligation.
Method of Assessment
Assessors frequently use the same methods as appraisers when they value properties under their jurisdictions. While investment properties are usually valued using the income approach, and unique properties are typically assessed based on their projected replacement cost, the market or sales comparable approach is the most common method for assessing houses. In this approach, the assessor looks at recent sales of similar properties and adjusts those sales to derive a value for your house based on the market data. Whichever approach the assessor chooses, it should yield a property's fair market value -- what a willing buyer would pay in an open market.
Many communities don't charge taxes on fair market values. Instead, the fair market value is adjusted to calculate the assessed value. In Colorado in 2013, a residential property's assessed value is 7.96 percent of its actual market value. California offers many exemptions that are subtracted from the property's assessed value to find its taxable value. In North Dakota, your assessed value is half of your market value, but your taxable value is 10 percent of your assessed value.
Assessors estimate the values of properties on different time frames. In Park County, Colorado, properties are assessed every other year. While California allows yearly assessments, increases are capped to no more than 2 percent per year until a property changes hands. North Dakota also allows yearly assessments.
- Arizona Department of Revenue: Arizona Property Tax
- Indiana Department of Local Government Finance: 2011 Real Property Assessment Manual
- Park County Assessor: Appraisal Methods
- California State Board of Equalization: California Property Tax -- An Overview
- North Dakota Department of Commerce: Property Tax Rates
- North Dakota Tax Department: Property
- Internal Revenue Service. "Publication 5307: Tax Reform Basics for Individuals and Families," Page 5. Accessed Sept. 15, 2020.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.