Assessed Value

Understanding Assessed Value

The assessed value of real estate or other property is only used for determining the applicable property tax, also known as an ad valorem tax. A government assessor is responsible for assigning the assessed value and for updating it periodically.

Government assessors are usually designated by specified tax districts, and each district may have different procedures for calculating assessed value. However, the basic process is largely the same.

Assessed value takes into account the overall quality and condition of the property, local property values, square footage, home features, and market conditions. Many of these judgments are based on computerized real estate data for that neighborhood and the surrounding area.

Depending on the state and locality, assessors may be required to personally visit properties periodically for assessment purposes. Owners who want to dispute the assessed value placed on their property can request a reassessment, which is a second evaluation of the property.

Assessed value may be lower for a property if you are an owner-occupant as opposed to a landlord (this is sometimes called a homestead exemption). That doesn’t affect the market value of the property but can reduce your property tax bill.

How Is Assessed Value Determined?

In most states and municipalities, assessed value is calculated as a percentage of the property’s fair market value. That percentage can vary considerably from one place to another.

Mississippi, for example, has one of the lowest ratios in the nation for owner-occupied single-family homes, at 10%. Massachusetts has one of the highest assessment ratios, at 100%.

How Are Property Taxes Calculated?

The assessed value of your home is only one factor used to determine your property taxes.

To calculate property tax, most assessors use an equation like the following, which typically includes a millage rate, or tax rate:

Fair Market Value × Assessment Ratio × Millage Rate = Effective Property Tax

The millage rate is the tax rate applied to the assessed value of the property. Millage rates are typically expressed per $1,000, with one mill representing $1 in tax for every $1,000 of assessed value.

So, for example, a house with a fair market value of $300,000 in an area that uses a 50% assessment ratio and a mill rate of 20 mills would have an annual property tax of $3,000 ($300,000 × 0.50 = $150,000; $150,000 × 0.02 = $3,000).

In addition to real estate, many states impose a tax on certain personal property, which is also usually based on the property’s assessed value. That can include mobile homes, cars, motorcycles, and boats. Those rates can vary widely as well, depending on where you live.