How Assessed Value Affects your Home

by Investing School on December 7, 2011

Simply stated, the assessed value of a property is used to determine your tax bill. The most common use of assessment is used for the purpose of taxing your residence. This value is determined by the Assessor’s office and is reached by analyzing a large number of individual sales, inspections and a study of similar neighborhoods. The goal is to maintain an equitable tax burden between all residents.

Assessed value is different than fair market value. The fair market value is calculated by dividing the assessed value by the average assessment ratio. The same ration is applied to all personal property, no matter where it is. Hypothetically this should give you an approximate market value of your home on January 1st of the assessment year.

Now, before you panic when you see that the assessed value of your residence is a lot less than what you think it is worth, economic downturn notwithstanding, understand that this is not the purchase price you can expect. In fact, homeowners are generally thrilled to see a lower assessed value because it means their annual tax bill will be smaller. For example, if you own a home that would sell for $250,000, but the assessed value is $200,000 and the tax rate is $1 per $100 of assessed value, then you would be paying $2,000 annually in taxes rather than $2,500.

You may also hear about the assessed value of a stock based upon what the street thinks the company selling the instrument is worth. Therefore if you have the opportunity to purchase stock below assessed value it might be worthwhile. A stock which is selling above its value is a great way to lose money, though.

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