Friday, June 3, 2011

The Story of Assessments

Some friends of mine were recently talking about, questioning actually, their home assessments.  Property taxes paid each year are based on the assessed value of your home.  These friends were concerned about their assessment versus their neighbors' and they were questioning how assessments were determined.


A call to the city assessors office provided some answers.  According to Scott Matthews, Madison is unique in that there are 11,000 parcels that are assessed each year.   Obviously, not all of these 11,000 are individually assessed.  For the most part, the assessments are done on a mass basis, by neighborhood.  


The process involves research into building permits that have been pulled (inspectors have seen these homes), the prices of homes that have sold in the last year, and in more recent years the listing prices of homes that are currently on the market.  From this research they can gather a pretty good snapshot of "comparables".   "Comparables" are homes that are virtually the same in terms of size, structure and amenities (number of bedrooms, number of bathrooms, etc.).   Based on this research, a value is reached and an assessment is assigned to each individual home within the neighborhood.  This is a process similar to what a real estate agent or independent appraiser compiles for home buyers and sellers.  


Matthews points out that individual homeowners can request to have their assessment looked at more closely.  This is generally done through the appeal process when property tax bills are sent out in the spring.  It typically involves a city assessor taking a tour of your home.


Your tax assessment is really just that.  A value on your home in order to assess a tax.  The value of a home is more closely aligned to an appraisal.


A reduction in the tax assessment of your home will only affect you if you plan to sell your home in the next few years.  Typically your assessment doesn’t have much effect on market value – as in some markets the assessment is undervalue (as was the case  a few years ago) and now, in many cases the assessment is actually overvalued.  A lot of homes are now selling for at or below assessment, not because the assessment is too high, but rather because that's what the market will bear.


Here's the bottomline: the value of a home is actually based on what a buyer feels the house is worth, in addition to what an independent appraiser decides the house to be worth.

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