What Is an Assessment Ratio?

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  • Written By: Geri Terzo
  • Edited By: PJP Schroeder
  • Last Modified Date: 23 May 2020
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Property owners and municipalities routinely reevaluate the value of real estate so that taxes are paid in a fair and accurate manner. In deriving the amount of tax that is due on real estate, the asset value, or assessed value, and the market value of a piece of property are compared. The result in that analysis is the assessment ratio. An asset value for a piece of property and the market value of that real estate are not always the same amount, and the difference may be based on a standard used by a municipality. Any difference between a market value and assessed value on property is significant because it influences the amount of taxes owed.

When a property owner has the value of real estate assessed, the individual may want to review the results to make sure they are fair. The value will impact the way that an assessment ratio is reached. Tax savings could potentially be missed, and evaluating property values may save unnecessary problems from arising in the future.

The way that regional property values are determined vary depending on how a state or local municipality ascertains value in comparison to what the market value of a property may be. Two values, including fair market value and assessed value, may be the same, but this is not always the case. In the U.S., a state may assign a standard assessment ratio that can be used in determining any property tax that is due by the real estate owner.

When an assessment ratio is standard throughout a region, a formula can be applied to learn a property's assessed value. Upon recognizing a piece of property and deeming that the real estate is in fact subject to taxes and not otherwise exempt, the calculation can begin. The fair market value of the property must be known to start. Next, the market value should be multiplied by the assessment ratio that a state or municipality enforces. The result is the assessed value of a piece of real estate.

Another formula can be used to determine the price a local or state government assigns to a piece of property. In this scenario, the assessed value of a piece of real estate must be known. That amount should be divided by the assessment ratio that a city, town, or state adheres to, which is usually expressed as a percentage. The result from this equation should represent the appraised price that the government assigns to that piece of property.


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