Frequently Asked Questions About Property
Assessments
Where did my assessment come from?
Each year the
assessor reviews the property within his/her assessing jurisdiction to see
what changes have taken place through either new construction or
demolition. The assessor also reviews recent sales to determine if the
relative assessments fall within acceptable norms. (Depending on the
Country, State or Province, the parameters for accurate assessing standards
are usually 5-15% either side of fair market value.)
In some areas
the assessments are set at a percentage of full value (full value = 100% of
value). If that is true in your area, you can easily find out what the
assessor believes to be the full value of your property. Just take your assessor's
level of assessment -- for example, 10%. Now divide that into your assessed
value -- for example, $7,000.
$7,000/0.10
= $70,000
In
this example, the full value assessment is $70,000.
It is also
important for everyone to remember that a small handful of sales at
20-30% above or below the assessed value does not necessarily establish a
trend. Accurate assessments require constant monitoring of sales, new
construction and/or demolition in order to estimate the fair market value
of every property.
What is "Fair Market Value"?
"Fair
Market Value" is the price for property that would be agreed upon
between a willing and informed buyer and a willing and informed seller
under usual and ordinary circumstances; it is the highest price a property
would bring if it were exposed for sale on the open market for a reasonable
period of time.
As you can see
from the definition above, "fair market value" is a theoretical
concept. Many sales occur at prices other than the "fair market
value." Often the sale price is adjusted because of time pressures on
the buyer or seller. Other factors that affect sale prices include
owner-held mortgages and property transfers within families.
If my local assessor values properties at
100% and in the next township they value at only 10%, are they still paying
their fair share of taxes?
Yes, they are.
When a taxing entity (e.g. school, county) covers multiple assessing units,
it is first necessary for all of the assessments to be equalized before tax
rates are calculated. To equalize these assessments or, in other words, to
place everyone on a level playing field, all of the assessed values are
first brought up to 100% (full value). This is accomplished by dividing the
assessments in the various municipalities by their corresponding
equalization rates or levels of assessment.
Is the purpose of a revaluation
to increase taxes?
No. The
purpose of an assessment revaluation is to make all of the parcels in an
assessing unit fair and equitable in relation to each other, based on
current market trends. In a declining market, revaluation could actually
lower the assessments. Whether taxes as a whole go up or down is based more
on budgets than assessments.
I did my own construction work to save
money, but my assessment went up as much as if I'd hired a union crew. Shouldn't my assessment reflect the actual cost of
the work?
Assessments
are based on fair market value. Whether you did the work yourself or hired
a contractor, the value is in the end product. Any additional improvements to
an existing structure adds what is known as contributory value. This value
is not based on cost, but rather the added value it "contributes"
to the overall worth of the property.
How does the assessor determine the value of
my property?
Sales
Comparison Approach
This first
method compares your property (known as the subject property)
to others (comparables) that have sold recently. Before any
sales can be used in this approach it must be determined if they are
"arms length" or good, open market sales. ("Arms
length" means that this property sale is the only connection between
the buyer and seller; they are not family members, employer/employee, or
linked in any other way.) As there may be outside factors that go into a
sale price the assessor must analyze each sale very carefully. Other
important valuation considerations are location, size, condition, quality,
and time of sale.
The sales
comparison approach is probably the assessment method that is used for most
properties. It is the obvious choice for assessing housing tracts, strip
malls, recreational properties located on the same lakeshore, and other
sets of similar properties. The sales comparison approach is difficult to
apply to custom-built (or older) homes in rural areas, farms, and other
unique properties.
Income
Approach
This property
valuation method takes into consideration how much income your property
would produce if it were rented, then determines -- through a
capitalization formula -- what a prudent investor would typically pay for
your property. To make this calculation the assessor must consider many
things including current market rents, vacancy rates, operating expenses,
taxes, insurance, maintenance costs, and the expected rate of return on
investment.
Cost
Approach (RCNLD)
This approach
is based on the cost of replacing your property new, less depreciation. The
assessor begins by estimating how much money it would take, with current
costs of labor and material, to replace your property with one similar. In
addition to the value of any improvements, the assessor must also
separately estimate the value of your land as if it were vacant. Then, if
your property is not new, the assessor must determine the amount your
property has depreciated and adjust the assessment accordingly.
As you can
imagine, a properly documented cost-based assessment is a lot of work. As a
result, it is generally the last choice for the assessor.
Should assessments change from year to year?
Assessed
values should generally follow the market trends. When the market is flat
there should be little change in the overall assessments. It is also
possible for some areas of a municipality to increase in value, while
others may decrease. In fact, an across-the-board change for all parcels is
the exception, rather than the rule. Properties in some areas or
neighborhoods -- such as around lakes -- often increase in value faster
than other areas.
It is
important to remember that the assessor does not create the
value. The real estate marketplace establishes the values. It is the
assessor's duty and responsibility to understand these values and assess
your property accordingly.
Is it "Tax Assessor" or "Real
Property Assessor"?
The correct
term is "Real property assessor," not "tax assessor."
The assessor's office has nothing to do with developing the municipal
budget (except the budget for the assessing department). Assessors have
nothing to do with deciding the total amount of taxes to be collected. The
assessor does not assess a tax. The assessor's legal responsibility is
to determine the fair market value of your property, so that the tax burden
can be fairly and equitably distributed.
The amount of taxes you pay is determined by
a TAX RATE applied to your property's ASSESSED VALUE. The tax
rate is determined by all the various taxing entities - town, county,
school, and special districts.
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Why do we have property taxes?
Property taxes
originated as a method for distributing the costs of certain geographically
based services such as schools, fire protection, lighting, water &
sewer districts. This "ad valorem" or
"according to value" method of taxation attempts to distribute
these costs fairly among those who theoretically benefit from the services.
The amount of tax attributable to each property is in proportion to that
individual property's value. The property tax has always been considered
relatively stable source of money because it does not fluctuate as do sales
and income taxes.
What else does the assessor do?
The assessor's
office maintains current data on each parcel it assesses. This data
includes ownership information, maps of parcel boundaries, inventories of
land and structures, property characteristics, and any applicable
exemptions. The assessor's office also, of course, analyzes trends in sales
prices, construction costs, and rents to estimate the value of all
property.
What are my rights and responsibilities as a
property owner?
If you do not
agree with the value your assessor has placed on your property, you should
call or stop by the assessment office to discuss the matter. Contrary to
popular belief, the assessor's job is not to artificially increase
assessments, but to maintain the most equitable values possible on all
properties. Most assessors maintain records on many hundreds, if not
thousands of properties. It's reasonable to expect an error or oversight
from time to time.
You can help
yourself and your assessor by making sure the information on file is as
accurate as possible. The assessor should answer your questions about your
assessment and explain how to appeal if you cannot come to an agreement.
You can help by providing accurate information.
It's easy to
lose your temper when you're talking about something as important as taxes.
Try to remember the limits of your assessor's job responsibilities. If you
think your assessment is too high, the assessor's office is
the right place to go. If you think taxes are too high, you
should make your opinion known to the elected officials who make up the
budget -- your mayor, supervisor, city, village, or town council, county
legislature, school board, etc.
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