For example, say your property was last reassessed 20 years ago for $100,000. If it is still valued at $100,000 for property tax purposes today, you would pay the same amount of property taxes that you paid 20 years earlier. If that property is reassessed, however, the property’s value would likely have increased or decreased over time, changing the tax rate you would pay. If the value is now determined to be $200,000 following reassessment, you would pay more in property taxes. Conversely, if the property is reassessed and its value is now determined to be only $50,000, you would likely now pay less in property taxes. In this way, reassessment makes property taxes fairer across all property owners in a certain property tax jurisdiction or neighborhood. Without periodic reassessment, property owners holding similar properties with similar values on the open market could end up paying vastly different amounts of property taxes.
How Reassessment Works
In most states, property tax assessors are generally county-, city-, or township-level officials. These assessor offices are responsible for assessing and reassessing property within their jurisdiction. When a property is up for reassessment, the property tax assessor determines the fair market value of the property based on the location and property type. The methodology for determining this value will differ based on location and property. After the reassessment is completed, many property tax offices will notify the property owner of the new assessment results. The property owner then has a chance to challenge or appeal the reassessment if they believe it is not accurate. Reassessment does not necessarily mean that a property owner’s property taxes will increase. If the real estate market in the area is declining, a reassessment could very well result in a decrease in the amount of property taxes an owner pays. A reassessment could also result in no change in the value of a property, as well. The results depend on both the property value and the real estate market in the area.
Types of Reassessment
Property tax assessors have a variety of methods through which they can value a property. In some states, such as New York, the assessor may also apply an equalization rate to determine the actual value upon which the property taxes should be based. However, the examples below assume that these properties’ jurisdictions do not apply an equalization rate.
Market Approach
Using a market approach to reassessment, a property tax assessor will compare the property being reassessed to similar properties in the area that have recently sold. This method is often used to value residential, vacant, and farm properties. For example, if a house was previously assessed years ago at $100,000, but a nearly identical property down the street sold last week for $200,000, then the assessor may decide that the property should be reassessed with a valuation of (or around) $200,000.
Cost Approach
Using a cost approach to reassessment, a property tax assessor will base a property’s valuation on what it would cost to construct an identical property using today’s prices for labor and materials. They will also adjust the value for depreciation and the market value of the land. Industrial, special purpose, and utility properties are often valued using the cost approach. Let’s say a laboratory building was assessed five years ago at $100,000. If an assessor was to reassess the property, they would take into account the following factors based on present-day information:
Cost of materials and labor to construct an identical building Value of the land the building sits on Cost of wear and tear the building has endured over time
Income Approach
With this method, a property tax assessor will base a property’s valuation on the income it would produce if rented out to tenants. Naturally, income-producing property like an apartment building is often valued using the income approach. The assessor considers:
Operating expensesInsuranceMaintenance costsFinancing termsAmount the owner expects to earn
Owner-Initiated Reassessment
Property owners will occasionally seek to have their property reassessed if they believe that their property declined in value. If a property owner can show that their property is worth less than the assessed value, then their property will be reassessed at the lower value, resulting in the owner paying less in taxes.
