Does an Appraisal Increase My Property Taxes?

Last updated on April 4th, 2024 at 01:57 am

As an appraiser, one question I often get asked by homeowners is, “Does an appraisal increase my property taxes?”

The answer will depend slightly on your situation, but in the vast majority of cases, the answer is “No”.

The amount of property taxes owed is determined by your town or county’s tax assessor, while an appraisal is typically completed for lending purposes. An appraiser must adhere to strict confidentiality guidelines – this means they can only release the results of your appraisal back to their own client.

An appraisers “client” is usually the lender who ordered the appraisal, or the homeowner who hired the appraiser for other reasons, like listing a home for sale.

In short, the tax assessor has no way of knowing the outcome of your appraisal unless it is provided to them by another party, and therefore has no way to base your taxes on the appraiser’s value estimate.

To fully understand property appraisals, we must first understand the appraisal process and the purpose of having an appraisal.

A property appraisal is an unbiased estimate of the true market value of a home, conducted by a certified or licensed professional.

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Appraisals are most commonly required during the buying process to ensure the home’s sale price is in line with its value.

The process typically involves an inspection of the property, comparison with similar properties in the area, and an evaluation of the overall real estate market.

The appraiser will consider factors such as the home’s condition, location, and any improvements or renovations when determining its value.

What’s happening in your market will also be a significant factor in value.

For instance, in a sellers market, where demand is high and inventory is low, home values may be higher compared to a buyers market, where there is more supply than demand.

Ordering an appraisal is one of the standard steps in the home buying process.

The appraisal provides added security to lenders, ensuring they do not loan more money than the property is worth.

Appraisal values are determined through a detailed analysis conducted by a licensed or certified appraiser.

The process begins with the physical inspection of the property to assess its condition and any features that may add to or detract from its value.

The appraiser will then perform an extensive analysis, examining similar properties in the area that have recently sold, to gauge your home’s value in comparison to the sale prices of the other properties being analyzed.

Appraisers also take into account broader market trends, like shifts in the housing market or changes in the economy, which could impact the property’s value.

Through a comprehensive approach, the appraiser can arrive at an estimated value point or value range for the purpose intended.

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A property appraisal can play an important role in various contexts.

For homeowners looking to refinance a home or obtain a mortgage, an appraisal provides the lender with assurance regarding the property’s value, which is a standard requirement for loan approval.

For estate settlements and divorces, appraisals are critical in ensuring equitable distribution of assets or determining their base value.

Property appraisals are also vital for insurance purposes, where the estimated value can assist in determining coverage amounts.

Through their diverse applications and uses, property appraisals are fundamental in making smart decisions in the real estate world and beyond.

Property taxes are calculated based on the assessed, or perceived, value of a property.

This value is typically determined by the local government’s tax assessor and reflects an estimate of the property’s worth in the current market.

The tax rate, often referred to as the millage or equalization rate, is then applied to the assessed value to determine the amount of property tax owed.

This rate varies by jurisdiction and is usually expressed in terms of dollars of tax per $1,000 of assessed value.

For example, if the assessed value of a property is $200,000 and the local millage or equalization rate is 10 mills (or 1%), the annual property tax would be $2,000.

There are also exemptions which can be factored in, such as for senior citizens or veterans.

A tax exemption can reduce the effective tax rate for eligible property owners.

Several factors contribute to the variation in property tax rates across different jurisdictions.

One primary factor is the local government’s funding needs for public services such as schools, police and fire departments, and infrastructure maintenance.

Communities with higher expenditures on these services often require higher tax rates to meet their budgets. Additionally, the overall property values within an area can influence tax rates.

Areas with higher property values sometimes have lower tax rates, as the total tax revenue needed can be raised from the more valuable properties.

Economic conditions, such as recession periods, can also affect property tax rates as local governments adjust rates to meet budget shortfalls or reflect changes in property values.

Lastly, voter-approved initiatives and referendums can directly impact property tax rates, either increasing them for specific projects or capping them to limit tax growth.

The property value of a home serves as the basis for calculating the property tax owed by each property owner.

Local governments will conduct property assessments periodically to determine the current market value of properties within their jurisdiction.

These assessments can be influenced by changes in the real estate market, improvements or additions to the property, and changes in the surrounding area that may affect property values.

An increase in a property’s assessed value generally leads to higher property taxes over time.

Conversely, a decrease in property value can lower the tax burden. Property owners have the option to appeal their property’s assessed value if they believe it does not accurately reflect the market value.

Homeowners can provide evidence such as recent sales of similar properties in the area, or an appraisal (conducted by a licensed appraiser), to support their case.

A common misconception among property owners is that having an appraisal of their home done will directly impact their property taxes.

While it’s true that an appraisal that is provided to the tax authority can influence the assessed value of a property, the tax authority does not have access to your appraisal.

If your home is being refinanced or purchased, the appraisal will be completed and submitted to the lender.

Due to strict confidentiality guidelines, the appraiser can only release their findings to the lender who requested the appraisal.

This means that not only can the appraiser not share their report with the tax authority – they can’t even share it with YOU, the buyer, in most cases.

MORE ON APPRAISAL CONFIDENTIALITY

Appraised value reflects the current market value of a property, determined through an evaluation by a professional appraiser.

This figure is often used in real estate transactions, financing, and for insurance purposes, as I mentioned above.

On the other hand, assessed value is calculated by a local government tax assessor and is used exclusively for levying property taxes.

This value may not always align with the current market value, as it is influenced by assessment rules and schedules that differ by jurisdiction.

The terms assessment and appraisal are often used interchangeably, which can lead to confusion if you don’t understand the difference.

THE BOTTOM LINE: An appraisal does not directly impact the assessed value of a property for taxation purposes.

Although tax authorities don’t have access to the information contianed in your appraisal, there is one data point that they DO have access to:

That is the price your home sold for.

A home’s sale price is a matter of public record and is generally accessible to anyone who seeks to find it.

In some cases, if a home sells for more than its current assessed value (which is often the case in hot real estate markets like 2022-2023), this can trigger a reassessment and hence, a potential increase in property taxes.

So, If your appraisal value comes in at the home’s selling price or beyond, confirming that your house is in fact worth what it’s selling for, the sale price will, at some point, become public knowledge.

So, in a sense, the appraisal could have an indirect impact on your property taxes, even if the appraisal itself has never been viewed by the tax authority.

If you believe your property has been assessed too high and you’re being charged too much, hiring a professional appraiser could be a good move.

By obtaining an accurate and current appraisal, you arm yourself with evidence to challenge the tax assessment.

While the appraisal itself does not guarantee a change in the assessed value, presenting this information during your appeal can make a compelling case for a reassessment.

Some counties employ their own staff appraisers to conduct periodic evaluations of properties within their jurisdiction.

This is part of a regular reassessment schedule that cities and counties use to realign property taxes with current market values.

When your area undergoes such a reassessment, their staff appraiser may view your property, which could lead to an increase or decrease in your property taxes.

This situation, of course, is different than if you had your own appraisal done.

The “client” we discussed earlier would be the tax authority in this case, and the appraiser wouldn’t have been hired by you or your lender.

To effectively manage your property taxes and hedge potential increases, consider the following strategies:

Keep up-to-date on your local property tax rates and when periodic assessments occur. This information is usually available on your local government’s website.

When you receive your property assessment notice, review it carefully for any errors in the description of your property. Errors can be grounds for an appeal or a reconsideration of the assessed value.

Familiarize yourself with the process for challenging your assessment in your locality. There are specific deadlines and procedures that you will need to follow in order to be considered for a re-assessment.

Some types of home improvements can significantly increase your property’s assessed value, leading to higher taxes. Research how different projects might affect your taxes before proceeding.

If the tax assessor can see the improvement (Decks, patios, new siding, sunrooms etc.), they are likely to assess the property for more.

However, improvements like new kitchen cabinets or a finished basement may not be immediately obvious to the tax assessor, so they may not have a reason to support an increase in your assessment.

Check how similar properties in your area are assessed compared to yours.

This will help you determine if your property is being fairly valued or if there are grounds for an appeal.

Pro Tip: You can usually find assessment data for your own property and others on your local county or village website. Search for “x” county real property records and you should come up with some options to begin your search.

By taking proactive steps to stay informed and engaged with your property’s assessment and taxation, you can better manage and sometimes mitigate increases in your property taxes.

Ultimately, it’s important for homeowners to understand the differences between property appraisals and tax assessments, and how these can impact their taxes.

Know that even if you’re having your home appraised, you can rest easy knowing the tax authority won’t have access to this data.

However, as noted above, your home’s recorded sale price will be a matter of public record, and can influence your future tax assessment.

By staying informed and proactive, homeowners can better manage their property taxes and potentially save money in the long run.

Have you successfully challenged an assessment?