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Assessed value is an estimate of a home's monetary worth used to calculate property taxes. This is why it's sometimes referred to as a home's tax value. Municipalities and other taxing jurisdictions apply their tax rates to your home's assessed value (or a percentage of it) when calculating your property tax bills.
What Does Assessed Value Mean?
Assessed value is an estimate of the worth of your house as evaluated by professional assessors and recorded on your municipal tax rolls. Depending on where you live, your home assessment may be conducted by your county, city or town. No matter which entity does the calculations, your home typically has just one official assessed value, which is shared by all jurisdictions that charge you property taxes. In addition to the municipality itself, taxing entities could include school districts, libraries and fire, water or sewer districts.
How Are Your Home's Assessed and Appraised Values Different?
In contrast with a home appraisal, which aims to estimate what a home would sell for today, under current market conditions, the goal of an assessment is to value each property fairly and realistically relative to all other properties in the municipality.
Municipalities typically update assessments on a rolling basis, with the goal of revising the assessment on each property every five years. Assessments, therefore, typically have a longer shelf life than appraisals, and the assessed value of your home is typically lower than its appraised value.
How to Calculate Your Property Taxes Using Assessed Value
Many municipalities base taxes on a set percentage of your home's assessed value, such as 80% or 90%, a figure known as the "assessment ratio."
Property taxes are calculated by multiplying a home's assessed value by the assessment ratio, and then multiplying the result by the municipal mill rate—a figure that's typically set annually and determines the amount by which property will be taxed. A mill is one-tenth of a cent, or 0.001 dollars; a mill rate of 1 means paying $1 for every $1,000 of your home's taxable value.
To calculate your annual property tax bill for any given taxing jurisdiction, multiply your property's assessed value by the assessment ratio, then multiply the result by its mill rate and divide by 1,000:
Tax Bill
=
(Assessed Value × Assessment Ratio) × Mill Rate
1,000
In a town with a 70% assessment ratio and a mill rate of 32, annual property tax on a home with an assessed value of $350,000 would be $7,840 annually. The calculation looks like this:
($350,000 × 70%) × 32 / $1,000 = $7,840
How Is Assessed Value Calculated?
Assessments are calculated based on many of the same property attributes that factor into a home's market value, such as:
- Square footage of living space
- Number and types of rooms
- Size and location of the lot
- Amenities or special features such as extra garage bays, outbuildings, decks or built-in pools
- Sales prices of similar properties sold nearby in recent months
Unlike appraisals, however, assessments are typically conducted without requiring a walkthrough of the house or surrounding property. Drive-by assessments are common, and assessed values may even be calculated using public records that document your home's characteristics. An exception may apply if you've put on an addition or made other major renovations that appreciably increase resale value, or if you've suffered a fire, severe flooding or other damage that could significantly lower resale value. In that case, an assessor might schedule a site visit to better evaluate the changes to your home's tax value.
A site visit may also be scheduled if you disagree with your home's assessed value. You have the right to appeal an assessment if you think your tax bill is excessive on grounds of an unrealistically high assessment. Typically, you must do so within a specified time window (such as 45 to 60 days) after receiving notice of a reassessment. Filing an appeal does not guarantee your assessment will be reduced.
Assessed Value vs. Appraised Value vs. Market Value
A home's assessed value, appraised value and market value are all influenced by the size and nature of its living space and yard, its age and condition, and the prevailing sale prices of similar properties in the area. These figures differ in terms of who calculates them, who requires them and how they are used, as summarized below:
| Assessed Value vs. Appraised Value vs. Market Value | |||
|---|---|---|---|
| Assessed Value | Appraised Value | Market Value | |
| Definition | The estimated value of a home used to calculate property taxes | An estimate of a home's current market value, in light of local market conditions | The amount a buyer is willing to pay for the property |
| Who determines it | Professional property assessor | Professional property appraiser | Real estate pro (estimate); homebuyer (and what they will pay) |
| Who requires it | Municipal tax authorit(ies) | Lenders issuing mortgages or loans collateralized by home equity | Homebuyers and sellers, according to free market forces |
| What it's used for | Basis for property taxation | Determining the amount that can be borrowed using property as collateral | Sale of the property |
| Update frequency | Typically, every five years, unless home is expanded, renovated or damaged | Anytime the home is financed or used as collateral on a loan | Anytime a home is sold |
A Final Assessment
All 50 states have some form of property taxes, and a home's assessed value plays a critical role in determining your annual tax obligation. Because lenders typically fold annual property taxes into your mortgage payments, your home's assessed value, and its impact on your tax burden, will also affect your monthly mortgage payments.
If you're considering a home purchase, it's wise to investigate the property taxes to understand how they'll affect your monthly budget. If you plan to finance a home, it's also wise to check your FICO® Score☉ ahead of submitting your mortgage application and, if appropriate, work to increase your credit score before seeking a mortgage and get the best lending terms you can.