Chapter 3

Assessing Real Property and Determining the Tax Rate


There’s millions in it!

Mark Twain – The Gilded Age (1873)


The purpose of this chapter is to explain how the assessment and taxing of real property works. You are probably familiar with the taxation part, or at least the part where the tax bill comes in the mail and you have to pay it. But much of the rest of the assessing and taxing process is confusing to the point where it seems almost deliberately so. ptax6_200

One of the reasons for this is the immense number of taxing jurisdictions in the United States today (almost 70,000). All these towns, villages, school boards, cities, sewer districts, fire districts, and counties each must keep track of countless properties and records. Many of these jurisdictions have differing rules, forms, and deadlines for doing this. And where there is some similarity of rules, there are different individuals interpreting the rules. The majority of these individuals are competent and hard working; however, they may be buried under a deluge of data they cannot cope with because they can’t afford modern tools or their staffs are too small.

Another reason for this confusion is that many of the taxing jurisdictions just aren’t taxpayer friendly. Forms and informational brochures are typically complicated and difficult to comprehend. It is almost as if their designs were inspired by the Internal Revenue Service.

But the process of assessing and taxing real property can be understood. What follows is a description that is designed to give you a good, basic understanding of the assessment and taxation process.

Purpose of Assessment

The assessment of real property has one purpose only – to provide revenue for various local government entities through the property tax. The revenue derived from the property tax provides income for schools, police and fire protection, road maintenance, etc.

The property tax is an ad valorem tax imposed on all non-exempt land and improvements within the taxing jurisdiction. The ad valorem nature of the tax means that it is based on the value of the property alone. The income or lack of income of the owner has no bearing on the property tax.

Assessed Value

Throughout this book the terms “appraisal” and “assessment” are used. Although very similar, they should be distinguished. An appraisal is an opinion of the value of a property as of a certain date. It may have been arrived at by a professional property appraiser trained in various methods of valuing property. An assessment is a tax assessor’s opinion of the value of a property as of a certain date and as recorded on the public tax roll for purposes of property taxation. It is an appraisal of value that takes on additional meaning in that it is the value officially recognized by the taxing authority. A tax assessor may or may not have the same credentials as a professional property appraiser, but he or she has the authority to decide on the official value, or assessment of a property. In subsequent chapters we will discuss how you may challenge the official assessed value of your property by offering your own opinion of its value.

Because market and other conditions can change gradually or rapidly, all taxable properties are assessed by the tax assessor as of a certain date called the assessment date. The assessment date provides a snapshot of the various conditions affecting all taxable properties at a specific point in time. This means that if the assessment date is January 1, and you add a new garage on June 5, the assessed value of your home cannot change to reflect the increased value until the following January 1. It also means, using the same assessment date, that if your home burns down on July 5, you will be taxed on the non-existent home until the next assessment date. While this may not seem fair in certain cases, the alternative is increased confusion in an already chaotic system.

The total assessed value of all the properties within a tax jurisdiction provides the basis for the property tax. The taxation of these properties provides the pool of wealth into which our public officials dip to provide the services they think we need or the services that we demand.

The Tax Assessor

Tax assessors are responsible for the fairness of all assessments so that a property owner pays no more or no less than a fair share of the property tax. It is the assessor’s job to determine the assessed value of all property in the taxing jurisdiction. This assessed value is essentially an opinion that is based on two things: the expertise of the assessor, and the accuracy of all relevant data used by the assessor in valuing a property. In accomplishing the task of assuring tax fairness, or equity, assessors identify, assess and officially record pertinent information concerning all properties within their jurisdiction.

Assessors are generally well educated professionals. They usually attain their positions through civil service examinations, political appointments, or through the elective process. They are more often than not responsive to the taxpaying public. But their responsiveness is tempered by the demand for increased tax dollars from local officials and by the complexity and shear size of the job which confronts them. It can be a very difficult task.

It is important to realize that tax assessors do not set tax rates, nor do they determine the size of the budget. They do not determine where tax money is spent, and usually they are not involved in the collection of taxes.

Assessing Real Property

The assessment process is a methodical and rational means of gathering, evaluating, and processing various data in order to arrive at accurate and fair value estimates for real property. It consists of a series of steps that are discussed in the following paragraphs.

 The First Step – Finding and Identifying Property

The first step in the assessment process is to locate and identify the subject property. This requires a legal description. A legal description is one that is recognized by law and that accurately describes a property’s boundaries with respect to some point of reference. A street or mailing address is not adequate because it doesn’t provide actual physical boundaries. Accepted methods are the government rectangular survey system, the metes and bounds system, and the plat method.

The government rectangular system

The government rectangular system uses north-south lines called principal meridians and east-west lines called base lines to locate an initial point within a state. Other north-south lines, called range lines, and other east-west lines, called township lines, form a grid or checkerboard pattern over a state. Each square in the grid contains six square miles and is called a township. Each township is further divided into 36 sections containing one square mile or 640 acres. Sections are further divided into quadrants of 160 acres, then sections of 40 acres, ten acres, and smaller.

The metes and bounds system

The metes and bounds or surveyor’s method uses surveying instruments to measure angles and distances from a point of beginning (POB). The beginning point may be a natural or man-made landmark. From the POB, the metes and bounds method provides directions on how to walk to the edge of the property, then walk along the boundaries of the property until arriving back at the POB. It is the most accurate method and best suited for irregular shaped lots.

The plat system

The plat system uses a map, called a plat map, that is drawn up by a property developer to describe a proposed subdivision or by an assessor to reflect changes in an existing neighborhood. The plat map provides an exact description of the subdivision. Each lot is identified by a number and a letter. The dimensions of each lot are also noted. The map generally includes detailed descriptions of streets, sewers, water pipes, and other physical features. Once approved by the appropriate authority, the plat map becomes an official record. It is then assigned an identifying page and placed into a plat book that contains other subdivisions located within or near a particular neighborhood or block. The plat method is the mapping method most often used by assessors.

One of these three mapping methods provide the basis for most assessing department’s mapping system. They commonly use numbers to identify the neighborhoods and individual properties within the taxing jurisdiction. The assessor’s system may be similar to the plat system whereby the assessor assigns each neighborhood or area a number. Individual properties within the neighborhood receive further identifying numbers. For example, 320-13 may indicate lot 13 in neighborhood 320.

The Second Step – Determining the Assessment Classification

After locating and identifying all taxable property, the assessor determines each property’s assessment classification. Recall that property is either real or personal. Both types may be further classified, or described. A property’s classification may affect the tax rate which is applied to the property.

Real property is usually further classified by a tax assessor as being residential, commercial, industrial, farm or vacant. Some tax jurisdictions further divide these primary classifications. An industrial property for example may be classified as “light industrial” or “heavy industrial”.

States which tax personal property often classify such property by whether it is used in manufacturing or other industrial and commercial uses. Certain types of machinery and equipment may be taxed at one rate while cars and boats for personal use are taxed at another.

Certain property is exempt completely or partially from taxation. Exempt property may be real or personal property. It may be owned by individuals or by the local, state, or federal government. The extent to which exempt property is excluded from the tax assessing process depends on the local taxing jurisdiction, and will be discussed in greater depth in Chapter 8, “Property Tax Exemptions”.

The Third Step – Collecting Data

The assessor next collects information on which to base the assessment of a particular property. This includes data about the general area, data specific to a property, and data about similar properties.

General data

The subject property is first defined with respect to its neighborhood. This is typically done on the basis of physical, political, and man-made boundaries. What rivers, hills, or wooded areas border the neighborhood? Is the neighborhood in a particular school district, voting district, or township? Do any bridges, railroad tracks, highways, and streets isolate the neighborhood?

After placing a property in a particular neighborhood or area, the assessor looks for information that can physically define the property. What is its location? Is it a good one or is it near a dump or a stockyard. Is the neighborhood attractive and well maintained, or is it rundown and continuing to deteriorate? Are there sufficient shopping centers, churches, and public means of transportation? The appearance of a neighborhood affects the value of the homes within the area.

What kind of lots are typical of the neighborhood? Are they small or large? Do they have standard or unusual shapes? Is there a flooding problem? Is there an adequate storm-sewer system? What kind of traffic flow is there? Is there heavy traffic? One-way streets or cul-de-sacs?

Are there any potential hazards nearby? Some potentially dangerous neighbors are airports, atomic power plants, and fuel storage facilities.

Is there adequate fire and police protection? Is refuse collected and are there public parks available? Are there enough schools? Are the zoning regulations adequate to protect the value of homes in the neighborhood? Are building codes up to date? Do they require quality building materials? Do building codes ensure that the materials used in the construction of neighborhood homes provide safety features?

Is there any crime? Are children safe from drug dealers? Is there a need for protective measures from burglary? Is the area crowded? Are the people who live there of the same religious and ethnic background?

What trends seem to be at play in the area that could affect property values? Are young families or retired people moving into or out of the area? What are homes selling for? Are there many vacant properties? Are many homes rented? Are any homes being foreclosed? What is the typical income of people in the neighborhood? What type of work is typical of the residents, white or blue collar? What does fire insurance cost?

Specific data

Because land is considered to be permanent, and improvements temporary and subject to deterioration, the assessor needs specific information about both to value them properly. The assessor collects information about the size of the parcel, its shape, the type of soil, and the amount of frontage (the portion bordering a street). He or she also considers nearby improvements like sewers, streets, water hook-ups, etc. Such improvements can increase the value of the land.

The assessor also collects data about any improvements. (An improvement is any addition to land that increases its value, e.g., a house or a fence.) For a house or condominium this includes information about its size, style, and age. What is its physical condition? How many rooms does it have? Is there a garage or pool? What is the quality of construction? What about roof type? What is the grade of windows and interior finishing. Are the exterior walls vinyl, aluminum siding or wood shingle?

Comparative data

The assessor needs comparative cost data on both the land and any improvement to the land. What do similar parcels sell for? What does it cost to build a home like the subject? What have similar homes in the area sold for in the recent past? The assessor will review appropriate records of recent property sales and sources of building cost data to answer these kinds of questions.

Property rights

The assessor must also consider what property rights are involved in the assessment. With single-family homes, these property rights are normally the fee-simple title. This is the entire bundle of property rights and typically the property rights that the average homeowner enjoys.

Private or public restrictions may affect property rights. It is the assessor’s task to determine if all the property rights are present. If some are missing, the market value of the home may be affected.

Some examples of private restrictions are easements and deed restrictions. An easement may decrease the value of one property while increasing the value of another. Consider an easement that allows someone to drive a pickup across a residential property to a woodlot. The access increases the value of the woodlot while decreasing the value of the residential property because the owner doesn’t enjoy full use of the property. A deed restriction may prevent the growing of fruit trees or access to a lake.

Information on private restrictions may be found in deeds or in title reports. Home or condo associations may also place limitations on ownership rights; information on these restrictions may be found in their regulations.

Some public restrictions are building, fire, or electrical codes, and zoning regulations. The codes regulate the types and quantities of building materials as well as room size and floor plans. They can have a significant effect on value.

Zoning may regulate the size of any improvements or limit the uses of a property. For example, residential zoning might require certain lot sizes or room sizes, or a certain distance between homes. Or it may prevent you from running a home based business. Information on zoning and the various public codes may be found in local zoning or planning offices.

This is some of the kinds of data that the assessor collects through interviews, questionnaires, forms, field trips, public records, sales data, etc. The assessor’s staff enters the information on property record cards or other forms of property records.

The Fourth Step – Analyzing the Data

Once gathered, all of the information must be assembled for the assessment process. Today it is often entered into computers. Still, this is a huge task. And it is made even more difficult by the fact that it is a continuing process. Everything is always changing, and it is the daunting task of the assessor to attempt to chronicle these changes.

Mass appraisals

Increasingly, the sheer numbers and types of properties have made it impossible, as a practical matter, for the tax assessor and staff to physically inspect every property in their jurisdiction. As a result, some assessors have moved to mass appraisal techniques which provide a means of valuing extensive numbers of properties at one time using similar methods and data.

These mass appraisals are generally performed under statutory rules that define the purpose and method of each such appraisal, as well as budgetary restrictions that define its scope and quality. If the statutory basis is not sound and comprehensive or if economic conditions restrict the scope, the mass appraisal may produce misleading and biased results.

Highest and best use

Once all data is collected, the assessor must determine the highest and best use of the subject property. Recall that this is generally considered to be that use which generates the highest net monetary return over a period of time considering all possible options. Often the present use of a property is its highest and best use. Sometimes, however, an assessor may decide differently.

Consider a house in a former residential and now rapidly growing commercial area. While it provides shelter for its owner, an assessor may determine that its highest and best use is as a six story office building and base the tax assessment on that use.

An assessor must consider all of the factors discussed in the previous chapter regarding highest and best use. The property’s highest and best use must be legally permissible, both from a zoning viewpoint and from an ownership viewpoint. There can be no restrictions in the property title preventing the intended use. The use must be one which fulfills a need of the community and one which does not harm the value of neighboring properties.

The Fifth Step – Determining Value

After collecting the information, the assessor is ready to determine the market value of the property. This may be difficult because of certain features of real property.

Real property is a one-of-a-kind item. The property your home sits on is the only piece of property exactly like it on the face of the earth. While your lot may look just like your neighbors, it is uniquely different. And while your home may seem outwardly similar to others, yours is unique by virtue of the paint, the carpeting or wooden floors, the way it is lived in and its exact location.

Real property is immobile. You can’t take your land and deliver it to a potential buyer as you can with other commodities. You can’t hide it from government taxation or eminent domain proceeding. This immobility also makes your property sensitive to positive or negative conditions beyond your control; an employer may move into or away from your area or the environment can change for better or worse.

Real property is permanent. Land cannot be destroyed, although improvements such as homes, pools, or barns can deteriorate over time. This aspect generally but not always causes an investment in real property to be of a positive nature. Three standard approaches for defining the value of real property have developed in response to these characteristics: the market data approach, the cost approach, and the income approach. In applying these methods, the assessor usually follows guidelines contained in an assessment manual issued at the state level. This manual provides instructions for telling when and how to use each of the three approaches.

There are many types of “value” in the world of real estate. The assessor in your state will likely use a statutory definition of market value. Be sure to find out from the assessor what that definition is. It will probably be similar to the following definition:

“Market value is an estimate of the price that a property would likely bring if offered for sale on the open market by a knowledgeable, willing seller to a knowledgeable, willing buyer.”

This definition assumes that:

1.         Market value applies to a certain date and may change with the passing of time

2.         The terms of the sale are for cash or its equivalent

3.         The property is offered for sale for a reasonable time period

4.         The seller and buyer are both fully informed about the property

5.         The seller and buyer are under no coercive pressure to conclude a sale

6.         The seller can deliver a clear title

With this definition of market value in mind, let’s briefly consider the main ways in which a tax assessor values property.

The market data approach

The basis of the market data approach is that the actions of buyers and sellers in the market place actually show what real world buyers and sellers are willing to spend and surrender their property for.

With the market data approach, also known as the comparable sales approach, the assessor determines the market value of the subject property by comparing it with comparable properties sold recently in the same area. It follows the premise that the market will establish a price for the subject property in the same way that the market set the prices of comparable properties. It is particularly important because it makes use of the actual responses of buyers and sellers to the market. It is probably the most reliable and convincing approach for valuing homes.

The market data approach is also favored with mass appraisals. Various statistical methods provide the means to analyze data gathered from the marketplace.

The cost approach

The basis of the cost approach is that an informed buyer would pay no more for an improved property than it would cost to build a similar improvement on land of comparable value.

With the cost method, the assessor first estimates what the value of the land would be if it were vacant. Then the assessor estimates the cost to reproduce or replace the improvement based on local construction costs on the assessment date. Next the assessor deducts any accrued depreciation on the improvement. Finally, the assessor adds the value of the land to the depreciated cost of the improvement.

The cost method may yield a higher valuation than the market data approach. Tax assessors like it for this reason and because it lends itself to mass appraisals. It works best with new construction and is likely to give an inaccurate value indication for older structures.

For mass appraisals, the assessor can assemble a lot of accurate and up-to-date information on the prices of construction materials from cost manuals. There is some chance of inaccuracy if the data from the manuals is applied manually. If the data is electronically available, accuracy can be very high.

The income approach

The basis of the income approach to value is a mathematical relationship between the amount of net income a property can be expected to produce annually related to a capitalization rate derived for the property. This approach is primarily used with income producing property. Because the income approach can be complex and because essential information may not be available or pertinent to residential properties, it is not commonly used to value houses or condominiums. It is beyond the scope of this book and it is not used by a residential taxpayer challenging a high property tax assessment.

The Sixth Step – Correlating the Results

Certain approaches are more appropriate for particular types of properties. The market data approach provides no help in the valuation of a racetrack, an aquarium, or any property where little or no comparative sales information is available. The cost approach is not relevant to the valuation of a vacant lot. And because most homeowners buy their homes for shelter and not to produce an income, the income approach is usually inappropriate for assessing residential properties.

The assessor may use any or all approaches in determining assessment value. For residential properties, the most relevant approaches are the market data and cost approaches. And because each approach examines different aspects of market value, the results are usually not the same. They may be fairly similar or they may quite different.

After obtaining indications of value from these approaches, the assessor reaches the next step in the valuation process. This step involves correlating the results to produce one final indication of value – the assessment. Because each approach uses different data, simply averaging the results does not produce the final result. Instead, the assessor has to consider several factors.

How much data has been collected for each approach? Is the data reliable? Is it accurate and up-to-date? Which approach has been used in this neighborhood before and with what results? Is this a new neighborhood where the cost approach can be used? Or is this an older neighborhood with enough recent comparable sales to effectively use the market data approach?

After considering these kinds of factors, the assessor decides a final opinion of value and the assessment is done.

Appraisal reports

At the conclusion of the assessment process, the results of the assessor’s appraisal are recorded in an appraisal report. The purpose of the appraisal report is to provide a persuasive proof of the assessor’s opinion.

There are two kinds of appraisal reports: the form appraisal and the narrative appraisal. The form appraisal may be simple or complex. It is designed to record some or all of the information about a particular property, and to support a particular value judgement. This material may be obtained from the owner and from other sources. Government agencies and banks most often use form appraisals.

The narrative appraisal may be many pages long. It shows how a conclusion about value is reached by providing all the pertinent data, by showing how all three approaches to value were used, and by showing how the results were correlated. The narrative appraisal is most often used by professional appraisers. The letter appraisal is an offshoot of the narrative appraisal and is often used by homeowners appealing their own assessment. An example of the letter type is found in the chapter on organizing your own appeal.

Because of the many appraisals that an assessor must perform, the form appraisal is the type most often used by assessors. Most often a tax assessor uses a property record card as the basis of his or her form appraisal. Remember that there is a great amount of data and analysis behind each assessment. The assessor wants the evidence on the form appraisal to be both provable and rational, but as we shall see in other parts of this book, mistakes often occur in these assessment records.

The Seventh Step – Preparation and Certification of the Tax Role

When the initial appraisal process is complete, the assessor has to prepare and certify the assessment role. To do this, the assessor makes a public announcement stating that the initial assessment and valuation data for all real property in the taxing jurisdiction is ready and available for public inspection. The instrument for this public announcement is often the local newspaper that carries other types of public information such as proposed zoning changes and foreclosures.

At this time, taxpayers may examine this information, and if there is a dispute, present any opposing evidence. If the arguments are valid, the assessor may change the initial assessment and the incorrect data informally.

After the initial assessment, the assessor files the tentative assessment roll used for taxing purposes and again announces publicly that the tentative assessment roll has been filed, when and where it is available for public review, and when and where the local board of assessment review will meet to consider formal complaints.

At this time, taxpayers may again examine the tentative assessment role. However, in most jurisdictions, the assessor may not legally change an assessment after the tentative roll has been recorded. If there is a disagreement, the only remedy is through a formal complaint to the local board of assessment review.

The local board of assessment review

The local board of assessment review (the name varies depending on location) consists of some number of individuals who are knowledgeable about local property values. They are usually appointed by a local government entity. The purpose of the board is to decide assessment appeals in a fair and impartial manner.

The local board of assessment review begins its annual meeting after the tentative roll has been filed. The meetings of the local board are open to the public and normally last until all complaints have been heard. The local board of assessment review is empowered to hear complaints, to decide cases between the assessor and the taxpayer, and to change assessments after the tentative roll date. Any complaint not filed by the end of the local board’s meeting will not be heard until the following year.

After the local board’s session, the assessor files the final assessment roll used for taxing purposes. At this time, the assessor is required to announce that the final assessment roll has been filed, and when and where it is available for review.

The assessor then provides the taxing authority with the final assessment roll and the total assessed valuation of all taxable property. The taxing authority uses this information to compute the tax rate and to send out tax bills.

Determining the Tax Rate

Each fiscal year, local government taxing units – counties, cities, school districts, towns, and villages – prepare an operating budget. This budget is an estimated cost of operating every aspect of that local unit’s activities for the coming fiscal year.

After determining its operating budget, the taxing unit estimates its revenue from all other sources (such as court fines, parking tickets, licenses and sales taxes). The taxing unit decreases its operating budget by these amounts; what remains is the amount of money that it needs from property taxes to satisfy its individual operating budget.

The taxing unit receives the final assessment roll containing the total assessed value of all taxable property (our earlier pool of wealth) from the assessor.

The taxing unit needs to get a certain percentage of the total assessed valuation to satisfy its operating budget. This percentage is the tax rate.

The taxing unit determines the tax rate by dividing the budget by the total assessed value. The resulting tax rate is then multiplied by each property’s assessed value in order to produce each individual tax bill.

Consider a county where the total assessed value of properties on the tax role is $900,000,000. The county’s budget is $20,000,000, and it has revenue from sources other than property taxes of $4,000,000.

$20,000,000  –  $4,000,000  =  $16,000,000

It still needs $16,000,000 from property taxes to meet its budgetary obligations.

To determine the tax rate, the remaining budgetary obligation is divided by the total assessed valuation:

$16,000,000  ¸  $900,000,000  =  .018

(Budget)  ¸  (Total assessed value)  =  tax rate

The rounded result (.018) is the percentage of the total assessed valuation required to satisfy the budgetary obligations. Multiplying each property’s assessed value by the tax rate (.018) and then adding all the results yields the needed $16,000,000.

The tax on a home assessed at $100,000 at this rate is now:

($100,000  ´  .018)  =  $1,800

The tax rate depends on the amount of the budget and the total assessed value. If the budget increases while the total assessed value stays the same, the tax rate goes up. For example:

$18,000,000  ¸  $900,000,000  =  .020

The tax is now: ($100,000  ´  .20)  =  $2,000

If the budget decreases while the total assessed value stays the same, the tax rate goes down:

$14,000,000  ¸  $900,000,000  =  .015

The tax is now: ($100,000  ´  .015)  =  $1,555

If the budget stays the same while the total assessed value goes up, the tax rate goes down.

$16,000,000  ¸  $980,000,000  =  .016

The tax is now: ($100,000  ´  .016)  =  $1,600

Expressing the Tax Rate

The tax rate is normally expressed in dollars per $100 of assessed value, or in dollars per $1,000 of assessed value in mills.

Mills are thousandths of a dollar or 1/10 of a cent. To find the tax on a home assessed at $100,000 with a tax rate of 16 mills per dollar, proceed as follows:

1. Convert the mills to a tax rate by either dividing the 16 mills by 1,000:

(16  ¸  1,000  =  .016)

or by simply moving the decimal point three places to the left. (16 mills  =  .016)

2. Multiply the assessed value by the converted tax rate: ($100,000  ´  .016)  =  $1,6000

To find the tax on a home assessed at $130,000 with a tax rate of $1.50 per $100, proceed as follows:

1. Divide the assessed value by $100.

($130,000  ¸  $100  =  $1,300).

2. Multiply the result by the tax rate.

($1,300  ´  $1.50  =  $1,950).

To find the tax on a home assessed at $90,000 with a tax rate of $15 per thousand, proceed as follows:

1. Divide the assessed value by $1,000.

($90,000  ¸  $1,000  =  $90).

2. Multiply the result by the tax rate.

($90  ´  $15  =  $1,350).

Assessed Value Versus Fair Market Value

So far we have discussed value in terms of fair market value.  We have said that fair market value is the actual cash value that would be paid by a willing buyer to a willing seller, or what common sense tells us the property is “worth”.

Not all assessors actually assess property at fair market value. Many tax jurisdictions use some percentage of fair market value other than 100%. For example, all property may be assessed at a statutorily defined rate of 40% of fair market value. In this case a home with a fair market value of $100,000 would have an assessed value of $40,000.

Many homeowners are relieved to see that their home is valued by the assessor at less than what they know to be its fair market value. In many cases however the assessment may actually be based on more than the fair market value, but because only a percentage of market value is reflected on the tax bill the homeowner is satisfied with the assessment.

As an example, your tax bill indicates your property is valued by the assessor at $97,500. You know it would sell for $120,000 on the open market and therefore conclude you are getting a great deal. However, since the assessor is basing the assessment on 65% of fair market value, he or she really has overvalued your home considerably, as shown:

Fair market value  =  $120,000

Assessed value   =  $97,500

Dividing the assessed value by .65 reveals the assessor actually considers the fair market value to be $150,000:

$97,500  ¸  .65  =  $150,000

The property should be assessed at 65% of $120,000, or $78,000, rather than $97,500.

Chapter Summary

This chapter has examined the valuation process from the assessor’s point of view. The major points of this chapter are:

1. The purpose of the assessment process is to provide the basis for the property tax.

2. The tax assessor is responsible for the fairness of all assessments.

3. The assessment process is a logical and methodical process that arrives at accurate and fair estimates of property value by:

a) locating and identifying property

b) classifying property by type

c) collecting relevant data

d) analyzing data

e) determining value using the three approaches to value

f) correlating the results

g) preparing and certifying the results

4. The tax rate is derived from the total assessed value of a taxing jurisdiction and its required operating budget.

5. Assessors may value a property at fair market value or at some fraction of fair market value.