Learn 100% online from anywhere in the world. Enroll today!

Assessed Value

Dollar value that is assigned to a property to measure applicable taxes

What is Assessed Value?

Assessed value is a dollar value that is assigned to a property to measure applicable taxes.

 

Assessed Value

 

A property will undergo an assessed valuation to determine its value for tax purposes. The assessed valuation will consider similar home sales and inspections. The dollar value is determined by the government and is utilized to calculate property taxes.

Typically, the assessed value will be lower than the appraised fair market value. It provides tax authorities with a tax base and other important information surrounding the property.

 

Summary

  • Assessed value is a dollar value that is assigned to a property to measure applicable taxes.
  • It is important to understand the difference between assessed value and market value. The market value is much higher than the assessed value.  
  • Assessed value is important for three main reasons – (1) it plays a huge role in property insurance, (2) the government relies on assessed value to levy the appropriate amount of property taxes, and (3) the assessed value will provide a rough estimate regarding the value of the home.

 

Understanding Assessed Value

Assessed value is an estimate of the property in comparison to similar properties. Municipalities and counties employ an assessor to value property so they can appropriately assign property taxes to it. From there, the assessor will come up with the assessed value and deduct any tax exemptions.

The value assigned will be multiplied by an assessment rate, otherwise known as the assessment ratio. It includes a uniform percentage that each tax jurisdiction will set. The percentage is typically 80%-90% and will determine the taxable value of the property. The higher the assessed value, the more taxes the property owner will pay.

 

Market Value vs. Assessed Value

The corporation assigned to assess property will look at the layout, age, condition, location, and recent sales in the area. The value determined will remain the same for 12 months when it is assessed again.

It is not likely that interior improvements made to your home, such as upgrading the bathroom or finishing a basement suite, will add to the assessed value of your home since the appraisers will not look at the interiors when evaluating the property.

However, renovations can increase market value tremendously. It is one of the main reasons why it is important to understand the difference between assessed value and market value. The market value is much higher than the assessed value. It can even change week after week, depending on how much an individual is willing to pay.

Overall, it is important for property owners not to assume that the assessed value will reflect the fair market value of their property. The assessed value is only an estimate of the property value, and therefore, is not important when determining the potential resale value of the property.

 

Why is Assessed Value Important?

Assessed value is important for three main reasons:

  1. It plays a huge role in property insurance, as it aids property owners in determining how much coverage they require. Their insurance will be based on assessed value, not market value.
  2. The government relies on appraisers to assess properties to levy the appropriate amount of property taxes. If they were to base it off of market value, property taxes would be much more expensive.
  3. It provides a rough estimate of the value of a home. If property owners choose to resell, they know the minimum amount that they will make on a sale.

 

Example of Assessed Value

Your home undergoes a valuation assessment for tax purposes. The assessor determines the assessed value of $500,000, and the local assessment tax rate is 80%. Therefore, $500,000 x 80% = $400,000 taxable value on the home.

The government will then utilize the figure to calculate your property tax bill. The assessed value is not to be confused with the fair market value of your property. It is possible that you can, for example, sell your home in the future for $600,000.

 

Related Readings

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Fair Market Value
  • Asset Valuation
  • Sales Comparison Approach (Real Estate)
  • Asset Management

Valuation Techniques

Learn the most important valuation techniques in CFI’s Business Valuation course!

Step by step instruction on how the professionals on Wall Street value a company.

 

Learn valuation

the easy way with templates and step by step instruction!