Word of The Week: Tax Assessed Value
This term is coming up a lot in today’s Housing and Real Estate Markets.
For years we had soaring Market Prices and nobody really cared what the tax value was assessed at. However, now tax values are higher than actual market values, and people are starting to notice in a big way.
Definition: Tax Assessed Value is a dollar amount estimate that the County Tax Assessor designates for each property in the county. More specifically, it’s the amount that the property tax amount is based upon.
In Minnesota, Property Taxes are paid for in the year they are levied, so if your tax statement says 2010 taxes, then those are the taxes payable in the year of 2010. In some other states, the taxes are paid ahead of time which can be a bit confusing.
The main thing people are upset about right now, is that Tax Assessed Values are higher than Fair Market Values. Fair Market Value is basically what houses are selling for in the real world.
Here’s the catch though: since 2010 tax amounts are payable in 2010, that means the Tax Assessed Value was actually calculated before 2010. So what you have is a couple years lapse in Tax Values when compared to Fair Market Value.
So, 2010 Tax Values were actually calculated in 2008 or 2009. That means whatever is going on in 2008 and 2009 is what the 2010 tax value will be based on.
Because of this 2-3 year lapse, what you actually see in MN is that Tax Values are 2-3 years behind Market Values.
Now you can see why this was never an issue in a fast moving upward market when market values were skyrocketing so drastically. Tax Values were still 3 year behind, and therefore people were getting a “deal” on their property tax amount.
Well, now that the market has declined in value for a couple years, we are seeing tax values much higher than market values. This has people angry, which is somewhat understandable.
What First Time Home Buyers need to know, is that these values are coming down in most areas right now, and will most likely continue to do so over the next couple of years. If you want to contest your tax assessed value, visit your county tax assessor’s website to inquire about how to have the value lowered.
You also should not base your offer price on this Tax Value, since the two are unrelated. To get a fair price for the property, all you have to do is look at the Comparable Sales and consult with your Realtor.
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