Property tax assessment: what is it and what it means

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Property taxes are a recurring expense that many homeowners need to be prepared for. To determine how much you owe, your local government will conduct a property tax assessment.

Here’s what you need to know about property assessments:

What is a tax assessment?

A property tax appraisal helps your county or local government determine the value of your property, also known as appraised value. The assessed value of the property is then multiplied by the property tax rate for your area to calculate your property tax bill.

The estimated value and the estimated value of a property may seem similar, but there is a notable difference between the two:

  • Evaluated value: The value of your home as determined by your local government and used to calculate your property taxes.
  • Estimated value: Following an appraisal of the house, the appraiser will give his opinion on the value of the house. This is the appraised value, and it helps lenders determine how much they will allow a buyer to borrow to purchase the property.

Learn more: When to Get a Home Refinance Appraisal and When to Skip

What is the difference between tax assessment and property taxes?

Property taxes provide significant revenue for local governments. To determine your property tax bill, your local government will perform a tax assessment.

Here’s a quick rundown of the difference between tax assessments and property taxes:

  • Tax assessment: An appraisal of your property, often conducted by a county or city appraiser, to determine the assessed value of the property.
  • Property taxes: What you pay based on the estimated value of your property and the property tax rate.

A portion of your monthly mortgage payment is deposited into an escrow account to cover property taxes and insurance premiums. Once your property tax bill is due for the year, your lender will use the funds in your escrow account to pay the bill.

Point: Your property tax bill may increase if your tax rate or the assessed value of your property increases.

On the other hand, if the assessed value or property tax rate goes down while the other goes up, you may end up paying less tax.

Some states also have property tax limits that protect residents from drastic increases in property values. Find out how property taxes are implemented in your area and stay on top of the latest changes.

Find Out: How To Do A Property History Research Before You Buy

What determines your property tax bill?

Property taxes change based on policies set by your county, city, and state. Likewise, the amount you pay may change based on your property assessment.

Some states update their assessments annually, while others may have a different schedule, such as every three years. Check with your tax authority to find out how often assessments are made.

Here are the three factors that go into determining your property tax bill:

The estimated value of your property

An appraiser employed by your local government will determine the assessed value of your home. When appraising your property, the appraiser can look at what neighboring homes have sold or have been appraised for.

Exemptions to which you are entitled

Some tax jurisdictions offer exemptions for a portion of the value of your home. For example, Idaho offers a homeowner exemption if you use the home as your primary residence, and up to $ 100,000 of the home’s assessed value may be excluded from the tax calculation.

Other exemptions, such as for the elderly or disabled veterans, may also apply.

Your property tax rate

Finally, the rate of your property tax is set by your local tax authority, usually the county.

Find: What does it cost to buy a house

How property taxes are assessed

Property tax assessments are made on the basis of the tax authority scale. Some appraisers are required to update home values ​​before the first of the year, while others may cycle for two or three years and notify homeowners at different times of the year.

There are three methods for assessing property taxes:

1. Replacement method

Sometimes referred to as the cost approach, this property tax assessment considers how much it would cost to rebuild the property based on today’s market for materials and labor. Depreciation can be included, and the cost of the land is also factored in.

2. Sales comparison method

Also known as the Market Approach, the Sales Comparison Method examines recent selling prices of comparable properties in your area. Your home’s features and improvements are compared to what was included in recently sold homes and your value is adjusted accordingly. This is a commonly used method for valuing residential properties.

3. Income method

Mainly used for commercial or commercial properties, this method examines the income that can be expected if the property were to be rented out. The appraiser also takes into consideration items such as operating expenses and insurance, as well as maintenance costs and financing terms.

The potential income and expenses are then combined to determine the property’s value.

How to appeal your property tax assessment

If you’re unhappy with your property tax assessment, you can usually appeal. Be sure to read your review letter for the appropriate action to take.

You should also:

  • Note any inaccuracies about your property, including the number of pieces or improvements that might be present.
  • Gather documentation, which can include compositions from realtors, as well as information about your property.
  • Make sure you follow the proper procedures to file the documents on time and present your case.

Depending on where you live, the cost of collecting the comps could be more than your property tax savings. Additionally, it’s important to determine whether being attractive is worth your time and energy.

Good to know: Your appeal could only change the assessed value of your home, not the property tax rate. If the home’s value is reassessed to a lower amount, your property tax bill will go down.

However, your recourse may result in a higher assessment, which may result in a higher tax bill.

Learn more:

Another way to reduce your housing costs

While lowering your tax bill can save you money, there are other ways to lower your monthly mortgage payments as well. Mortgage refinancing can be an easier way to save on housing each year because you can change your loan terms and get a lower interest rate.

Credible makes refinancing easier. You can view the prequalified refinance rates from our partner lenders in just three minutes. We also ensure transparency of lender fees so that there are no surprises.

Find out if refinancing is right for you
  • Real rates from several lenders – In 3 minutes, get real prequalified rates without impacting your credit score.
  • Smart technology – We streamline the questions you need to answer and automate the document upload process.
  • End-to-end experience – Complete the entire creation process, from price comparison to closing, all on Credible.

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About the Author

Miranda Marquit

Miranda Marquit is an authority on mortgage, investment and business. His work has been published on NPR, Marketwatch, FOX Business, The Hill, US News & World Report, Forbes, etc.

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Penny D. Jackson