Dear Monty: What is the best way to interact with the city assessor? Can you guide us on market value versus assessed value? More specifically, what factors dictate assessed value?
When we purchased our house, the real estate agent went to great lengths informing us that the potential for the market value to rise is very high. He mentioned that many buyers are looking for houses in the neighborhood to remodel or tear down and rebuild. The city assessor said that our assessed value and property taxes wouldn’t increase if a neighbor built a $1 million home or remodeled one. The city assessor informed me later that the assessment of our house will go up. It seems like the city assessor was contradicting herself when explaining the increase in our assessed value. I don’t understand the factors that go into assessed value. I know it differs for each neighborhood, city, and state.
Monty’s Answer: Most states have their theories and philosophies about how to tax real estate. In most states, the municipalities have to follow guidance from the state government.
The definition of market value is the price a willing seller and a willing buyer agree to in a negotiation when both are fully informed and neither are acting under duress. The primary considerations most homebuyers and sellers are:
No. 1: The evaluated property compares favorably to the price of recently sold comparable homes.
No. 2: The evaluated property compares favorably to the price of similar direct competition on the market.
No. 3: The relative condition, quality, age, location, and other features of the subject compared to the sold comparables.
No. 4: Building the identical home on a comparable lot suggests that cost sets the upper limit of value.
No. 5: Is it a buyer’s market, a seller’s market, or a balanced market in the surrounding neighborhood?
The purpose of the municipal property assessment is to determine future taxation. The process is not the same. There are hundreds or thousands or tens of thousands of homes in a municipality. They are evaluated based on sophisticated algorithms in a computer system that contains very general information about your home on an assessment card created when the home is completed. The square footage, the construction grade, the number of bathrooms, the date the assessor viewed the house, which establishes the age, and several other features.
Many states require reassessments at predetermined intervals. Some states will reassess on a sale or a remodel permit. The purpose of the reassessment is to keep the assessment fair for all property owners. While the reassessment may cause your taxes to increase, they may also decrease. The reason this happens is the property tax is based on the mill rate. Here is a link that offers a clear explanation of the mill rate: Investopedia.com/terms/m/millagerate.asp.
When You Disagree With the Assessor
Municipalities have a process where you can challenge the assessment. It is called the board of appeals. You probably received a notice with your new assessment stating how to challenge it. The most successful taxpayers at an appeals board come prepared to demonstrate that the assessor made some calculation error. The most common errors are errors in measuring the square footage, inaccurate room counts, or similar mistakes.
Here is an article about how to challenge a real estate appraiser: DearMonty.com/challenge-real-estate-appraiser. The process for challenging the local assessor works in the same way.