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Frequently Asked Questions About Property Assessments

 
Where did my assessment come from?
 
What is "Fair Market Value"?
 
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?
 
Is the purpose of a revaluation to increase taxes?
 
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?
 
How does the assessor determine the value of my property?
 
Should assessments change from year to year?
 
Is it "Tax Assessor" or "Real Property Assessor"?
 
Why do we have property taxes?
 
What else does the assessor do?
 
What are my rights and responsibilities as a property owner?
 
 
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.

 

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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.

 

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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?

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.

 

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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.
 

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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?

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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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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