If you’re on the path to becoming a first-time homeowner, you’re probably trying to get a grasp on all of the necessary home details, payments, and processes. One thing on that list is a home assessment, also known as a property value or property tax assessment.
No need to cower behind your hands at the likes of that official-sounding phrase, because the Movoto Real Estate team is here to break it down for you. And don’t worry–we’re convinced there are even current homeowners out there oblivious to the term.
What Exactly Are Home Assessments?
An assessment is the value of a property calculated by your local government. City tax assessors calculate this value based on recent sale prices of comparable homes and the area’s “equalization rate,” or the ratio of the assessment to market value.
- For example, a house with a market value of $600,000 and an assessed value of $300,000 has an equalization rate of 50 percent.
If the assessment of your desired home scares you, don’t wig out too much because it’s generally not a good benchmark for determining the home’s value.
How Do Home Assessments Matter?
First off, home assessments matter because the local government uses it as a way to figure out how much you owe for owning the home. The assessment is used to determine the cost of your property taxes–though this varies in different states, the rate is generally between 0.2% and 4% of the home’s value.
Additionally the assessment could matter if prices have dropped since you purchased your home. The market is a constantly changing variable, and a steady decline in home prices could mean you’re being charged too much for taxes (based on a property assessment that was completed when prices were higher).
If this is the case, you might consider appealing your assessment to reduce your property taxes.
But Wait, There’s More…Taxes
We hate to be the bearer of bad news, but yes, these property taxes are in addition to federal and state income and sales taxes.
Unfortunately, they’re also virtually inescapable. On the up side (or maybe the downside depending on how you look at it), you should only get this bill once a year in one lump sum.
Since you’re probably wondering, here’s a breakdown of where exactly your property taxes are going:
- Public schools (usually more than 50 percent)
- Maintenance of public roads
- Communal and public areas like parks and libraries
- Police and public safety
- Other community expenses, such as snow plowing if you live in an area where it snows
No, It’s Not the Same as an Appraisal
An appraisal is normally completed by your mortgage lender and essentially represents the fair market value of a specific property. The appraisal value is determined by looking at:
- comparable sales
- the condition and location of the property
- the size
- the number of rooms
- the type of construction
The bottom line: An appraisal is used to help your lender determine the amount they’re willing to loan you, while home assessments are pursued by the city to decide how much your property taxes are.
