Insight on Assessed Property Value (vs Appraised Value) for Property Tax Increase?
Hello,

Thanks for reading.  Can anybody share some insight on how a county property tax assessment works in comparison to a real appraisal?

The county websites claim that the assessor appraises the Fair Market Value based on tried and true appraisal techniques. But why then is there always such a huge gulf between a sales price and the assessed value?

For example, I am looking at a property that was purchased in 2013 for $4.3MM, but yet the assessed value was determined as $2.1MM.  I guarantee you the buyer did not overpay by $2.2MM. 

I'm sure I'm not the first to come across this - but any rules of thumb you could share would be useful/helpful/paid forward.

Thanks! 
[{"id": "d9itbs2", "text": "It varies state by state. The sale price could have included furnishings or other property, they could have lost tenants or had some sort of economic hardship and won a tax appeal, or the state might only have an assessed value that is 40% (or something other %) of the FMV. There are a lot of appraisers and attorneys that do nothing but tax appeals.", "replies": [{"id": "d9j3lcp", "text": "These assessments are aggressively appealed everywhere.  I get calls from these service providers all the time that go through the tax rolls and find properties that they think might be over assessed.  These are gov employees doing these \"appraisals\" so its not a ver sophisticated process.  ", "replies": [{"id": "db7s4zu", "text": "Just curious, what state are you from froggy?", "replies": [{"id": "dbc1s6t", "text": "California", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "d9kh3vv", "text": "it's a mass appraisal process, they don't look at every parcel. It will also vary by state. Because they use mass appraisal techniques, each value is based on the average of properties with similar characteristics.   \n\nFor example in NC, reassessment is only done every 14 years, but the county can do a 'midterm' reassessment in 7 years if they want. It caused a major issue in Charlotte because the reassessment happened during the Great Recession.  \n\n", "replies": [], "depth": 1}, {"id": "daagm9w", "text": "Depends on the state in which you are looking. In Pennsylvania, most (all?) countries conduct county-wide reassessments every X number of years. When the reassessment is done, theoretically, every property is assessed at its real market value. That's debatable because of methods used and their models can't be 100% accurate based on exterior inspections. But for the sake of answering your question, assume in year 1 of reassessment every property is assessed at 100% of market value. \nDuring each subsequent year, to account for increasing or decreasing market values, real estate sales from two years prior are aggregated by the state to come up with an assessment ratio. The assessed value for each property in the county remains the same, but you can apply the assessment ratio to the assessed value to arrive at the implied market value. The implied market value, in a perfect world, would equal the market value of that property for that year. The more years you get from the last reassessment, the larger the difference between sales price (typically the market value) and the assessed value. \nFor example:\nSay county reassessed in 2000. Property A is reassessed at $100,000. The assessment ratio is 100%. In 2016, based on sales from 2014, the assessment ratio is calculated to be 57.7%, meaning that the assessment values from 2000 are 57.7% of current market values. To arrive at your implied market value (IMV), you divide $100,000 by 0.577, which is $173,310. In a perfect model, if Property A sold in 2016 in a typical arms length transaction, one would expect it to sell for around $175,000. \nIn 2017, the assessment ratio is calculated to be 56.7%, so the IMV is $176,056. If market values are increasing, assessment ratios are decreasing. \nThat's why it might look like they are over paying, but really it's just been a long time since the last reassessment. Now if it sold for $300,000 then it might send up a red flag to the local taxing districts that the property is under assessed and the assessment needs to be adjusted prior to the next county-wide reassessment. Thats a case of taxing district appealing the assessment. If it sold for $110,000, the buyer might have a case to lower the assessment because it may be over assessed, assuming a real arms length sale. That's a case of an owner appealing the assessment. ", "replies": [], "depth": 1}, {"id": "daah3rk", "text": "My answer was long winded and didn't really answer your question lol a rule of thumb: look up the assessment ratio for the current year for the county in which your property is located. Apply that ratio to the assessed value. It should be roughly what it just sold for/what someone is about to pay. If there is a significant difference, the property is over/under assessed or there is something funky about the sale. Or you have a uniformity issue. Also, you may come across a different ratio, which would be 1.73 in my previous example. This is called the common level ratio factor in Pennsylvania. It's simply the reciprocal of the assessment ratio (1/0.577= 1.73) and you would multiply that by the assessed value instead ($100,000x1.73= $173,310)", "replies": [], "depth": 1}]