How Property Taxes are Calculated on a New Home

While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Home valuation tools — plus some back of the napkin math — can help you get a rough estimate of your assessed value, but there’s really no substitute for an official government assessment. Reach out to your local Assessor’s Office for more details about your assessed property value.

About your inquiry and other home-related matters, but not as a condition of any purchase. MoreYou also agree to our Terms of Use, and to our Privacy Policy regarding the information relating to you. This consent applies even if you are on a corporate, state or national Do Not Call list. meeting of the minds So, how does the appraiser determine the value of the

property in question? They start by visiting the home to evaluate its condition

and quality of construction. Neither you nor the seller needs to be present for

this, but you can be there to learn the process more in depth if you like.

The appraisal process determines a value for the property that is relevant to your mortgage lender. In a nutshell, the goal of determining the appraised value of a property is to help assure a lender that they are making an informed, sound investment when offering a loan. They do not want to be on the hook for lending more than the property is realistically worth. What you pay regularly in property taxes is determined by a number of key factors, chief among them the tax assessed value of your property. So, assessed value might be thought of as the value of a residence, as determined for tax purposes. They may decide to go with the first appraisal if it’s not drastically off.

Assessed Value is Used for Tax Purposes

Lenders will typically hire an independent appraiser to confirm a home’s value before they agree to issue a mortgage — they need to verify that the home is really worth the amount they’re lending the buyer. For example, if you want to get a $300,000 loan to buy a home but it only appraises for $275,000, that’s a problem for the lender. The difference, called an appraisal gap, will need to be bridged in some way, whether by renegotiating the price or paying the difference in cash, in order for the loan to go forward. It’s easy to conflate your home’s assessed value with its appraised value or fair market value, but each figure is actually pretty distinct and serves its own function. Think of your property assessment as a tax assessment, because the only time it’ll come into play is to figure out your property taxes.

One issue with this type of appraisal is, unlike the one ordered by a lender for a home purchase, the appraiser frequently does not visit your home or the comparable properties to complete their assessment. The appraiser may not be aware of damages, repairs, improvements or renovations done to your home or the comps that can impact their market values. If you believe your property has not been properly assessed, you may have the opportunity to protest the tax assessed value of your home. This in turn may permit you to pay a lower amount in property taxes. You can learn more about the steps to protesting your tax appraisal here.

Appraised value may not correspond to an asset’s or property’s market value. Lisa Kaplan Gordon is an award-winning writer who’s covered real estate and home improvement for realtor.com, Yahoo, AOL, and many others. When trying to understand the assessment value of a property, you must know who is doing the assessing and why the property is being assessed. Homeowners can improve the appraised value of their property by making improvements that are greater than simply cosmetic. Additions, bathroom and kitchen remodels are the type of permanent improvements which can increase the appraised value. Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

The Bottom Line: Research Before Selling Or Buying A Home

Owners who don’t agree with an assessed value may request a reassessment through their local municipality. For example, if there’s a greater quantity of homes for sale but a decline in homebuyers, the market value will drop while the appraised value will likely stay the same. Since the appraised value is what an appraiser has calculated, and the market value is how much homebuyers are willing to spend, it depends on the housing market at the time. If the original appraiser isn’t willing to budge, you can hire your own professional to provide a second opinion. This will cost you around $300 to $450 for a typical single-family home.

• Assessed value may be lower for a property if you are an owner-occupant as opposed to a landlord (this is sometimes called a homestead exemption).
• This amount is usually owed either annually or semi-annually, and is generally split up over two payments.
• Buyers who search for homes online tend to search up to a certain price point — usually a round number — so keep that in mind when you price your home.
• Your home’s tax-assessed value gives a sense of what your annual property tax payments might look like.
• In the case of Cook County, homeowners can expect a three-year window between assessments.

Appraisals can only be used to obtain an estimate, but if you want to make a deal, it is recommended to get the property valued for definitive results. It determines the actual value of a property from an unbiased point of view. Real estate agents generally do it for free as it is an informal valuation.

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This means that two home appraisers may arrive at different valuations. Lenders request appraisals any time someone applies for a home loan, whether it’s for a new purchase or to refinance a mortgage. Because home appraisals function as a way to protect lenders from risk, they can be more thorough than a house assessment or CMA report.

This amount is usually owed either annually or semi-annually, and is generally split up over two payments. Note that your lender will collect money toward your property taxes in escrow, so this annual payment likely won’t be all out of pocket. In fact, some lenders just wrap your annual property taxes into your monthly mortgage payment, so you pay toward it every month regardless. Bankrate.com is an independent, advertising-supported publisher and comparison service.

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Appraised Value vs. Market Value

This visit can take anywhere from 15 minutes to a couple hours,

depending on the size and state of the home. While an appraisal gives you a good idea of your home’s value, there’s no way your appraiser can predict how your home will actually perform on the open market. Maybe it will stay on the market for weeks or months, and you’ll need to do a price reduction.

If you sell to a buyer with financing, their lender will order another appraisal before closing to protect themselves from lending more than the house is worth. In that case, it’s ideal to list right at the appraised value, or even a little under, so the deal goes smoothly. But if you have a cash buyer, they’re not beholden to a lender’s appraisal, so they can offer whatever amount they want.

The difference between the home’s sales price and its market value becomes a gift of equity. Many lenders allow the gift to count as a down payment on the home. If you’re looking to sell your property, it’s important to list it for a price that’s attractive to buyers but will also get you the best deal possible. Plus, lenders won’t approve mortgages for homes that are overvalued, making it tough to sell a home that’s priced too high. Your real estate agent should provide a CMA that weighs the positive and negative features of your home, as well as local market trends and demand.

How To Use A Mortgage Calculator

It is not uncommon for the two values to be different from one another, and as a homeowner you should understand why. While assessed value and market value may seem similar, these numbers can be different—typically, the value as assessed is lower—and they’re used in different ways. So let’s clear up any confusion, so you can use these terms to your advantage. Lenders use the appraised value of a home in their underwriting process and ultimately this value will determine how much money may be borrowed.

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What Do Property Taxes Pay For?

Lot size, home size, number of bedrooms and even the dimensions of each room could be off. If that’s the case, come back with some documentation to prove your case and ask for your assessment to be amended. Most assessment disputes happen when a homeowner feels the assessed value of their home is too high, since this means an unfair tax bill.

As you consider home options, realize that the assessed value and tax rate can change regularly. And with those changes, you’ll be required to pay a variable tax bill each year. However, assessors will often use the computerized assessment as a starting point. The assessor may adjust the determined assessed value based on the specifics of the home in question. We’ll be happy to help you better understand the difference between appraised and assessed values and how they relate to the home buying process. If you are waiting to put your home on the market, knowing your home’s market value is essential.