How to Assess a Property Value

If you own property, it’s important to know how much it’s worth. Each year, you have to pay taxes based on an assessment of the property value.

Understanding how property assessors determine this value helps you maximize your returns and avoid being overcharged on your annual property taxes.

Assessed Value vs. Market Value

There are two terms to consider when discussing property values. The assessed value refers to the property’s reasonable market value. The market value is the amount of money a buyer is likely to pay for the property. Both of these values take into account the local real estate market conditions and incorporate the recent sale prices of comparable properties in the area.

State and local governments use assessed values to calculate property taxes. Property owners rely on the market value to determine a property’s sale price. The assessed value tends to be lower than the market value. As such, it’s less likely to fluctuate during shifts in the market, according to Realtor.com.

Methods for Assessing Property Value

Property assessors use one of three methods to determine value depending on the property type. For residential properties, farms and vacant land, they usually compare the property to similar ones that recently sold in the area. When assessing industrial property, they may calculate how much it would cost to replace the property using current labor and material costs. For commercial properties like apartment buildings and office centers, they consider how much money the owner earns annually from rent. Each of these methods takes into account the cost of property maintenance and management, insurance and taxes.

How to Estimate Property Values

If you want to estimate the value of your property, try using the market approach. Start by locating the sale prices of at least similar properties in the area. Comparable properties have a similar lot size, square footage, age, location and even home style. In many cases, you won’t find exact comparisons, so you have to add to or take away from the value based on the amenities and features, according to the New York State Department of Taxation and Finance. Determining how much to adjust the value for each of these features takes additional research. You have to find out how much more or less people were willing to pay for them.

How to Estimate Property Taxes

You can also estimate your property taxes if you know the local mill levy, assessment rate and market value. Both the mill levy and assessment rate are percentages determined by the local government, according to Investopedia.

Take, for example, a property with a market value of $200,000. If the assessment rate is 15 percent of the market value, the assessed value is $30,000. Multiply that number by the mill levy to determine the property taxes.

Using Assessed Value in Real Estate Negotiations

A property’s assessed value can be useful in real estate negotiations, reports Realtor.com. This value is part of the public record, so buyers can see how it has changed over time and whether it’s rising or falling. Buyers may also use the figure to justify making an offer below the asking price, especially if the assessed value is considerably lower.