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Market Value Versus Tax Appraised Value

What is the market value of a property versus the tax appraised value? This is common question that we come across on a regular basis with real estate investors.

Each year, a home or property is assesed to determine how much property taxes the owner must pay.  This money then goes to local schools or to repair roads or whatever the county needs.
The assessment is not based on the comparision of properties in the area, as done with for a market rate, but of the property itself and whether or not there have been additions or improvements made to the property--say a new pool has been put in or a new garage.

Market rate is what a buyer would pay to purchase the property or home.  One buyer might not be bothered if there's no freeway access nearby or the rating of the schools nearby are poor.  This buyer is retiring and his children have a gone off to college, he's not concerned about getting to work or the schools.  This buyer might be willing to pay more than a buyer who needs to get downtown to work and has three young children. 

The ratio between the two numbers, the market rate and the tax assessed rate, is called the equalization rate.  This percentage is determined by dividing the tax assessed rate by the market rate.

Remember, the market value has a number of, let's say wide angled factors - the emotional desire of the buyer, motivation of the seller, real estate cycles, outlook of the economy, plans for development in the area, and so on.

The tax assessed value, is more a blue print type of measurement.  How many square feet in the property and have there been any additions made to the property. 

However, some times a home can be unfaily assessed a value not inline with the area they live in or there's been damage to the property overtime. 

Compare your properties tax assessed value with others of like kind and if needed, go to your counties tax office to dispute the assessment. Yes, a property owner wants the value of the property to increase, but at the same time you don't want to over pay in terms of taxes if the value of the property isn't being valued correctly.

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