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Market value


Property values are generally based on fair market value of the property on the valuation date. Fair market value has been defined as that price a willing and informed purchaser would pay to an unrelated willing and informed seller where neither party is under compulsion to act. Sale of the particular property between unrelated persons generally conclusively establishes fair market value on the date of sale. Thus, a recent sale of the same property provides good evidence of market value. Where there has been no recent sale, other techniques must be used to determine market value.

Assessed value


Many jurisdictions impose tax on a value that is only a portion of market value. This assessed value is the market value times an assessment ratio.[26] Assessment ratios are often set by local taxing jurisdictions. However, some states impose constraints on the assessment ratios used by taxing jurisdictions within the state.[26]Some such restrictions vary by type or use of property, and may vary by jurisdiction within the state. Some states impose restrictions on the rate at which assessed value may increase.[27]

Equalization among jurisdictions

Many states require that multiple jurisdictions taxing the same property must use the same market value.[28] Generally, such state provides a board of equalizationor similar body to determine values in cases of disputes between jurisdictions.[29]

Valuation techniques


Tax assessors may use a variety of techniques for determining the value of property that was not recently sold.[24] Determining which technique to use and how to apply it inherently involves judgment.

Comparable sales

Values may be determined based on recent sales of comparable property.[30] The value of most homes is usually determined based on sales of comparable homes in the immediate area. Valuation adjustments may be necessary to achieve comparability. Among the factors considered in determining if a property is comparable are:

• Nature of the property (house, office building, bare land, etc.)
• Location
• Size
• Use of the property (residential, commercial, farm, etc.)
• Nature of improvements
  • Types and uses of buildings
  • Features of the buildings (number of bedrooms, level of amenities, etc.)
  • Age of improvements
    
• Desirability of the property (view, proximity to schools, type of access, nearby detracting features, etc.)
• Restrictions on the property (easements, building code restrictions, physical restrictions, etc.)
• Utility of the property (fertility of land, drainage or lack thereof, environmental issues, etc.)
• General economic conditions
  

Cost

Where recent comparable property sales are not available, a cost based approach may be used. In this approach, the original or replacement cost of a property is reduced by an allowance for decline in value (depreciation) of improvements.[26] In some jurisdictions, the amount of depreciation may be limited by statute. Where original cost is used, it may be adjusted for inflation or increases or decreases in cost of constructing improvements. Replacement cost may be determined by estimates of construction costs.


Income


An alternative valuation may be used for income producing property based on economic concepts. Using the income approach, value is determined based on present values expected income streams from the property.[26] Selection of an appropriate discount rate in determining present values is a key judgmental factor influencing valuation under this approach.

Special use values

Most taxing jurisdictions provide that property used in any of several manners is subject to special valuation procedures.[31] This is commonly applied to property used for farming, forestry, or other uses common in the jurisdiction. Some jurisdictions value property at its "highest and best use", with some of these providing exceptions for homes or agricultural land.[32] Special valuation issues vary widely among jurisdictions.

Revaluation

All taxing jurisdictions recognize that values of property may change over time. Thus, values must be redetermined periodically. Many states and localities require that the value of property be redetermined at three or four year intervals.[33] Such revaluation may follow valuation principles above, or may use mass valuation techniques.


Limits on increases


Some jurisdictions have set limits on how much property values may be increased from year to year for property tax purposes.[34] These limits may be applied yearly or cumulatively, depending on the jurisdiction's rules.

Assessment process

The assessment process varies widely by jurisdiction as to procedure and timing. In many states, the process of assessment and collection may be viewed as a two-year process, where values are determined in the first year and tax assessed and paid in the second.[35] Most jurisdictions encourage property owners to declare the value of their property at the start of the assessment process. Property owners in all jurisdictions are given rights to appeal taxing authority determinations, but such rights vary widely.


Valuation by assessor

Jurisdictions imposing property tax uniformly charge some official with determining value of property subject to tax by the jurisdiction.[36] This official may be an employee or contractor to the taxing government, and is generally referred to as the tax assessor in most jurisdictions. Some taxing jurisdictions may share a common tax assessor for some or all property within the jurisdictions, especially when the jurisdictions overlap.

Tax assessors must first determine what property is subject to tax, compiling lists or rolls of such property. In many jurisdictions, the tax assessor notifies the last known owner of each property that the property is subject to tax. The tax assessor must determine the value of each property subject to tax. Often, the value used is the value from the previous assessment, possibly increased or decreased by a factor determined by the tax assessor.