You have a house of many values, as you’ve probably discovered if you own real estate and pay taxes. A real estate appraiser estimates the value that a willing buyer and seller would use in a sale. That’s appraised value. You probably paid that price or less when you bought the property. That’s market value. Now that you’re paying property taxes, you’ll see an assessed value. Appraisal districts use state law to calculate assessed value as a percentage of appraised value.
When you purchased the property, the appraiser valued your real property and improvements based on comparable sales in the area. Comparing similar property sales, the appraiser adjusts the calculations up or down, depending on whether your property is superior or inferior to the comparables. The appraiser values your property on a certain date based on market conditions and the economy. The appraised value and the sale price follow the property for years.
The assessor’s office will usually apply the most recent sale price or appraisal value for the starting point for calculating your property taxes. When the property changes hands, the assessor’s office uses this opportunity to adjust values and taxes. Assessed value isn’t the same as appraised value in most states. Some states, Louisiana for example, use as little as 10 percent of appraised value for calculating assessed value. Other states use 80 to 100 percent of appraised value as assessed value.
Assessed Value Changes
The appraisal district and assessor’s office change property values for calculation of taxes based on the ups and downs of the economy and the area real estate market. A blanket change affects all properties in the subdivision or area. Assessed property values may increase or decrease a percentage each year, but states often have statutory limits developed by the legislature to avoid sudden large increases. If your property value increases as a result of a change in the assessor’s office calculations, a limitation may restrict the first year’s increase to, say, 3 percent. If the assessed value increases by 5 percent, then a 3-percent increase would go into effect the first tax year and 2 percent would carry over to the second year.
In a study using data from 2007 through 2009, the Tax Foundation found that property taxes averaged 0.96 percent of home values nationwide, with Louisiana parishes having the lowest property taxes. At the top of the scale, some New York counties tax property at 2.99 percent of home values. Rounding off, average property taxes are 1 to 3 percent of appraised value.
The relationship between appraised value and assessed value depends on the state and available exemptions. Some states allow a homestead exemption if it’s your primary residence, reducing your yearly tax liability. Arkansas, for example, has assessed value set at 20 percent of true market value, with a $350 tax credit for a homestead. California assesses property at 100 percent of full market value but allows a $7,000 homestead exemption.
Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.