Tuesday, July 17, 2012

Home Tax Assessed Value Vs. Appraised Value

When you buy or sell property, the listing price is usually close to the property's fair market value. But if you were to look at the tax bill for that particular property, you would probably see a different value listed on it--called a tax assessed value--and that value could differ by thousands of dollars.

Fair Market Value

Fair market value, or FMV, is the price a home should sell for under  "normal" market conditions. Normal; is a subjective term, but it generally means that the local housing market is not in distress due to a large number of foreclosures or a recent natural disaster like an earthquake or hurricane. FMV is usually determined by comparing the property to similar properties within a quarter-mile radius, and is based upon what price these similar homes sold for within the past year or two.

Tax Assessed Value

Your home's tax assessed value, or TAV, is usually a percentage of the property's FMV. Most states assess homes at 80 percent or 90 percent of FMV. California assesses homes at 100 percent of FMV, but because of Proposition 13, the state limits the tax amount to be paid through a different formula. Some counties around the country, especially in areas with depressed housing markets, only reassess homes every five or 10 years due to the high cost of the reassessment process.


Even after a base value has been determined for a property, the actual figure for the tax owed on the property could be lower due to certain exemptions. For instance, homestead properties are discounted; so are homes owned by combat-wounded veterans, widows or handicapped individuals. Exemptions differ from state to state and county to county, so be sure to check with your county';s tax assessor's office.

California's Proposition 13

Before 1978, California homes were reassessed every year. This is no longer the case, and a homeowner';s property tax now increases according to a capped inflationary index that is automatically calculated. Homes are now only reassessed upon their sale, after certain types of improvements or by request of the homeowner.

Some property sales are exempt from reassessment, including transfer of a property from spouse to spouse, or transfer between parent and child. When a homeowner wants to improve a property by, for instance, installing a fence or deck, or constructing an addition, the person must apply for a building permit.

Notice of building permits are automatically sent to the tax office, and this triggers a reassessment of the property's value. A homeowner may request a reassessment if the fair market value of the home has declined or if a natural disaster inflicted more than $10,000 damage to the property. In the 1970s, California experienced a huge increase in property values.

Properties were reassessed every year, and homeowners suddenly found themselves paying hundreds of dollars more in property taxes each subsequent year. But when California passed Proposition 13 in 1978, some limits and protections were put in place for homeowners: They would never have to pay more than 1 percent of the fair market value of their home, and the tax amount could not increase more than 2 percent in any subsequent year.

This means that if your home appraised at $250,000, your annual property tax would be capped at $2,500. Furthermore, even if your home doubled in value over the next year, your tax would only increase to $2,550, instead of $5,000. Once the property sold, however, it would be reassessed as if new.

Short Sales

If you purchased your home below FMV due to a short sale, then the amount you paid is not considered FMV. Assessment will be determined based on what the price would have been under normal sales conditions. by Micah Rubenstein, Demand Media
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