Assessed Value Of Home: Everything You Need To Know About Property Values
There are many expenses that come with being a homeowner – aside from your mortgage, you also have to worry about insurance, maintenance, renovations, and taxes. Even when you’ve already paid off your home loan, certain financial obligations remain.
Property taxes are just one of the several charges you have to pay every year. But plenty of homeowners don’t understand how those taxes are calculated, which means that they don’t know how much to budget for it and how they can cut costs.
The key? Understanding the assessed value of your home.
By the end of this article, you’ll know more about what getting assessed means, why your assessed value matters, and what goes into your real estate tax rate calculations.
What Are Property Assessments?
When you get your property assessed, a local government assessor takes a look at the fair market value of your real estate. That market value is then used to calculate how much you need to pay in property taxes.
Fair market value is mainly determined by the current asking price of other similar properties in the area. Since market conditions change – and the value of your home may appreciate or depreciate – this is calculated usually every year or every two years on a specific date based on your jurisdiction.
In some areas, your assessed value is equal to the fair market value. In others, the market value is multiplied by an assessment rate to come up with your home’s assessed value.
Property Value vs Market Value: What’s The Difference?
In this guide, we’ll be referencing property value, fair market value, and appraised value quite a bit. Although they may sound similar, there are actually some key differences that you need to know.
First off, fair market value describes how much you could sell your property for. It’s the price that buyers are willing to pay for a similar home in terms of size, amenities, location, and more. Market value is incredibly helpful in computing many financial obligations for homeowners, including mortgage, insurance, and property taxes.
Assessed value refers to how much of that is taxable by the local government. Generally, the assessed value is lower than the market value, although there are some exceptions. This is mainly calculated as the market value minus any tax exemptions, multiplied by an assessment rate (80-90% in most jurisdictions).
Why Does The Assessed Value Of Your Home Matter?
Valuing a house is important mostly for tax purposes. Unlike a mortgage, you have to pay real estate taxes every year – there’s no “expiration date” when you can stop paying them. If you don't know what your properties’ assessed values are, then you won’t know if your property taxes are fairly computed. You might be spending way more than you should, and you don’t even know it.
Many homeowners aren’t aware that their property tax bill is flexible – you can claim exemptions and appeal to have your assessed value reduced, but you need to do it within a short time frame.
What Factors Go Into Calculating Your Property Tax?
The main consideration for your real estate taxes is the market value of your properties. Here are some of the things that can affect your assessed value:
Age/condition: Although there are some exceptions, older properties (or those requiring significant repairs or renovations) tend to have a lower assessed value.
Size: Usable space and home size are critical factors in assessing value. The bigger your home, and the more usable space there is, the higher your property taxes are likely to be.
Location: Where your property is located is perhaps one of the biggest considerations in determining real estate value. This includes how accessible services and amenities are (e.g. public transportation availability, distance to schools and city centers, etc.), neighborhood crime rate, and the like.
Indoor/outdoor characteristics: How many bedrooms and bathrooms do you have? Is there a garage, attic, or backyard? Have you done any renovations or home upgrades? What about the home’s “curb appeal? All of these factor into your assessed value.
Purpose: How your property is used (e.g. as a residence, commercial space, etc.) can also impact property taxes. Some types of buildings are exempt from real estate tax.
Exemptions: The most common exemptions include exemptions for religious use and properties used for non-profit/charitable purposes. You may also get a real estate tax deduction/exemption if you are using the said property as your main residence.
How To Calculate Your Assessed Values & Property Taxes
If you want to know your assessed value, there are two ways of doing so: through your market value, and through your property tax bill.
Here’s how to do it using both methods:
By Market Value
You’ll need three things:
Your market value: This is how much a buyer would generally agree to pay for your home at current market rates.
Your jurisdiction’s assessment rate: This is a percentage set by the local government. Most states have it in the 80-90% range, although some may go as low as 20% or as high as 100%.
Your jurisdiction’s millage rate: Set also by the local government, this is the amount you pay per thousand of assessed value. For example, if your mill rate is 50 mills, that means you have to pay $50 for every thousand that your property is assessed to be worth.
Let’s say that your home’s value is pegged at $300,000 and the assessment rate in your state is 50%. That means that the assessed value of your property is $150,000. At a mill rate of 20 mills, that means you’d owe $3,000 in property taxes.
By Property Tax Bill
You can also reverse-engineer your home’s assessed value by looking at your annual property tax bill. This one's relatively easy to do if you already know your effective tax rate, which is the assessment rate multiplied by the mill rate. You can usually find this information on your county website.
For example, let’s take an assessment rate of 20% and a 50-mill rate. That’s an effective tax rate of 1%. Now, look at your tax bill. If you paid $1,500 in taxes, you can deduce that your assessed value is at $150,000.
How Do Home Improvements Affect Your Assessed Values?
Renovating or upgrading your home obviously affects its market price, which means that it can affect your assessed value as well. But improvements are generally assessed separately – whatever additions you made will be valued at the market value for only those additions in that year.
For example, if you bought a home 10 years ago and remodeled the kitchen only recently, your home’s assessed value will be the original value (adjusted for current market rates) plus the current value of your renovation.
However, certain types of improvements do not affect the assessed value at all. This includes reconstruction after a natural disaster, solar panel installation, and safety improvements.
Tips For Saving Money On Property Taxes
If you feel like your tax assessment is off-base, contact your local assessor as soon as possible. You can appeal your evaluation as long as it’s within your jurisdiction’s appeal window. It’s helpful to have documentation that proves how much your home is worth.
Know which exemptions your property qualifies for, and make sure to claim them on your tax assessment.
Before initiating any renovations, understand how it will affect your annual tax bill.
Cooperate with the assessor and allow them onto your property. If you don’t, they’ll make assumptions about the value of your real estate, potentially inflating its worth.
If you can’t lower your real estate taxes, the least you can do is claim them as deductions on your other taxes. You can deduct up to $10,000 total in state, local, and property taxes.
Not knowing your home’s assessed value is one of the biggest reasons that homeowners pay way more in property taxes than they should. If you’d like an expert eye to handle your real estate taxes, Wesley Mortgage, LLC is here for you. Contact us today and learn more about how we can help you save money!