What is a Property Tax Assessment?

A property tax assessment involves an appraiser calculating the market value of a piece of commercial or residential real estate and using the market value to determine the land owner’s property tax liability. Property taxes are usually payable to local rather than national governments, and tax proceeds pay for local government provided services. Certified appraisers, who are known as chartered surveyors in many countries, usually conduct the property tax assessment.

The property appraiser either visits each property and conducts a full home inspection or examines county records to determine the size and dimensions of a particular property. Appraisers review data relating to recent real estate sales to find comparably sized properties and uses that information to estimate the value of the property being assessed. When determining the value of rental properties, appraisers can also take potential rental income into account when placing a value on a property. Property appraisals are usually conducted at the start of the year although the taxes are due towards the end of the year.

Taxes are charged as a percentage of a property's value, and as a result taxes are generally higher on expensive homes. In some areas laws exist that cap the amount the property tax assessment can increase from one year to the next. Consequently, tax assessed values of properties are not always representative of the actual market value. In areas that cap increases in the property tax assessment, the property value normally only resets to the current market value when a new owner takes possession of the property.

Homeowners typically have the right to contest the property tax assessment if they feel the appraiser over-valued their home and caused their tax burden to rise. In order to contest an appraisal, homeowners have to provide the tax assessors office with evidence of recent property sales that support their claim. Some homeowners pay to have a certified appraiser conduct a full appraisal of their property in order to determine its true value. During recessions property prices often fall, and while caps exist on tax assessment increases, there are usually no floors on decreases.

Tax assessed values of property are normally kept in public records. Lenders sometimes use the tax assessed values as a free alternative to paying for full appraisals during the underwriting of home loans. Due to the imprecise nature of tax assessed values, lenders only use these valuations to price loans being written for small amounts or loans that amount to only a small faction of the overall value of a home.