Assessment Ratio
Definition of "Assessment ratio"
When a real estate owner wants to know what their property tax liability is, they calculate the assessment ratio for their property. An assessment ration is a relationship between a real estate's assessed valuation and its market value. In order to know what is the assessment ratio for any personal property or real estate, a homeowner needs to learn what the assessed value of the property is and its market value. In order to discover a property’s assessment ratio, one needs to divide the assessed value of the property by the asking price of the property. The assessment ratio is rarely at 100%, as the two values rarely match. So let’s see how the assessment ratio works.
How does the assessment ratio work?
As mentioned above, the math to discover the property’s assessment ratio is relatively simple. Getting the two values can be slightly trickier.
Firstly, you need to know that the assessed value is a value that the authorities, in this case, a government assessor, sets for the property annually to calculate the annual property tax of the owner. In order to calculate the assessed value of a property, the assessor needs the property’s market value, which is multiplied by the assessment rate. The assessment rate is set at the district or county level.
The second element of the equation is the market value of the property. That is relatively straightforward as it is the actual price of the property if it were put on the market. For this, one needs to consider the supply and demand present on the market at that time, the structure of the real estate, materials used, aesthetics, etc.
The difference between a property’s market value and its assessed value gives homeowners a good understanding of the market’s current condition, discouraged or promising. If the two values are equal or close to being, then the market is promising; if the values are distant, the market is discouraged.
The formula for the assessment ratio is:
Market Value/Assessed Value = Assessment Ratio%
Popular Real Estate Terms
Measurement of investment return that relates current income to the investment cost. Example: Brian Whyke bought a parking lot for $150,000, which generates annual revenue of $90,000, ...
Amount of money paid for some form of property. In real estate, the price paid for property is usually the market price; however, in the case of a forced sale, as in a foreclosure sale, the ...
When a property owner defaults on his or her tax payments, the taxing jurisdiction may force a liquidation of the property or tax sale for the purpose of collecting the owed real estate ...
Contract to act on the behalf of a principal in selling real estate. The principal agrees to pay a commission to the broker when a buyer is produced who is ready, willing, and able to meet ...
Mortgage that has an interest rate that changes based on some event. For example, the interest rate may vary depending on changes in the prime rate or inflation rate. ...
Decision rendered by a court of law. ...
Formal allegations by all of the parties to an action including complaints, answers, and replies to counterclaims. ...
The net operating income definition is the total profit generated by a business or real estate development after the necessary operating expenses are taken out. In order to determine the ...
Rate of return of capital invested in building improvements. Is segregated from land investments and provides a method of separating property income streams between improvement and land ...
Have a question or comment?
We're here to help.