Property taxes are based on assessed value, which your local assessor builds from an appraised value — the assessor’s official estimate of your home’s market value at a specific point in time. So the honest answer to whether property taxes are based on market or appraised value is: both, indirectly. The assessor appraises your property to estimate its market value, then applies an assessment ratio (and any exemptions) to produce the assessed value your tax rate is actually multiplied against. Market value is the starting concept. Appraised value is the assessor’s snapshot of it. Assessed value is the number that gets taxed.
The Three Values, Side by Side
Even assessors’ offices sometimes use these terms loosely, which is where a lot of the confusion comes from. Keep them separate and your tax notice starts making sense.
Market value is what a willing buyer would pay a willing seller in an open transaction with neither party under pressure. It shifts constantly with interest rates, housing demand, and comparable sales in your neighborhood. Nobody pins it down with precision, because every sale is slightly different.
Appraised value is a professional estimate of market value made at a specific point in time. When your county assessor’s office values your home for tax purposes, they are appraising it. Private appraisers hired by mortgage lenders do the same thing for loan underwriting. The two numbers can differ because they’re produced at different times by different people using slightly different data.
Assessed value is where taxation actually starts. Most jurisdictions take the appraised value and multiply it by a fixed percentage called the assessment ratio. If your home’s appraised value is $300,000 and your jurisdiction uses a 25 percent assessment ratio, your assessed value is $75,000. That $75,000 figure, not the $300,000, is the number your tax rate is applied to.
Confusing appraised value with assessed value is one of the most common mistakes homeowners make when reading a tax notice, because the assessed value is almost always lower than what you think your home is worth.
How the Assessment Ratio Turns Appraised Value Into a Tax Base
Assessment ratios vary dramatically across the country. Some jurisdictions assess residential property at 100 percent of appraised value, meaning the assessed value equals the full market estimate. Others use ratios as low as 10 or 15 percent. Commercial and industrial properties often carry higher ratios than homes in the same jurisdiction. Two towns with identical tax rates and identical home values can produce very different bills if one assesses at 20 percent and the other at 100 percent.
These ratios are set by state law, not by individual assessors. Your assessor has discretion over the appraised value but not over the ratio applied to it. When you see a neighbor’s assessed value that seems impossibly low, the explanation is usually the ratio, not a sweetheart deal. Your assessment notice should list both the appraised value and the assessed value so you can verify the ratio was applied correctly.
Why Your Assessed Value May Not Track Today’s Market
Several states limit how fast your assessed value can climb from year to year, even if the housing market is surging. California’s cap is the most well-known, restricting annual increases to 2 percent of the prior assessed value regardless of actual appreciation. Florida caps homestead property increases at 3 percent. New York and South Carolina limit increases over five-year windows. These caps protect homeowners from sudden spikes, but they also mean your assessed value can drift further and further from actual market value the longer you own your home.
Outside these scheduled increases, certain events can trigger an immediate reassessment that resets your value to current market levels. The most common trigger is a change of ownership. When you buy a home, the assessor typically revalues it based on the sale price or current market conditions. Major renovations, new construction, and additions flagged through building permits also trigger revaluation. Subdividing a parcel or changing its use from residential to commercial can do the same. If you add a large addition, expect your next assessment to reflect the improvement, even if the jurisdiction’s regular reappraisal cycle is years away.
How Assessors Reach the Appraised Value
Assessors don’t guess. They use one or more of three standard approaches developed by the International Association of Assessing Officers and adapted for mass appraisal, the process of valuing thousands of properties simultaneously using shared data and statistical models. Which method was used on your property matters if you ever need to challenge the number.
Sales Comparison Approach
This is the workhorse for residential property. The assessor identifies recent sales of homes similar to yours in location, size, age, and condition, then adjusts for differences. If a comparable home sold for $350,000 but had a finished basement yours lacks, the assessor subtracts value. If yours has a larger lot, they add value. The result is an estimate of what your property would sell for based on what similar properties actually did sell for. The quality of the estimate depends heavily on having enough recent, comparable sales in the area. In rural communities or neighborhoods with few transactions, data gaps can produce shaky numbers.
Cost Approach
The cost approach asks what it would take to rebuild the structure from scratch today, minus wear and tear. The assessor starts with replacement cost, typically drawn from national construction cost databases adjusted for local labor and materials. From that figure they subtract three types of depreciation: physical deterioration from age and deferred maintenance, functional obsolescence from outdated layouts or missing features modern buyers expect, and external obsolescence from neighborhood factors like noise or environmental hazards. The remaining value of the improvements is added to the estimated land value. This method works best for newer construction or unique properties where comparable sales are scarce.
Income Approach
For rental and commercial property, assessors often estimate value based on what the property earns. The basic formula divides the property’s net operating income by a capitalization rate derived from market data. If an apartment building generates $120,000 in net operating income and comparable properties in the area trade at a 6 percent cap rate, the indicated value is $2,000,000. Assessors pull rent data, vacancy rates, and operating expenses from the local market to calibrate these inputs. For income-producing property, the accuracy of the income approach depends on whether the assessor’s assumptions about rents and expenses match reality, which makes it fertile ground for appeals.
What to Do When the Assessed Value Looks Wrong
If the appraised value on your notice seems too high, you have the right to challenge it. This is where separating the three numbers pays off. An appeal targets the appraised value, the assessment ratio application, or both. The process varies by jurisdiction, but the framework is consistent across most of the country.
Review your assessment notice as soon as it arrives. You typically have a limited window to file, often 30 to 90 days from the date the notice was mailed. Missing that deadline usually means waiting until the next assessment cycle. Filing fees are minimal or nonexistent in most places, generally ranging from nothing to a few hundred dollars.
The strongest appeals rest on one or more of these foundations:
- Recent sales of similar properties in your area that sold for less than your appraised value. Pull data from the same sources the assessor uses, such as recorded deeds and transfer documents.
- Factual errors in the assessor’s record: incorrect square footage, wrong lot size, a finished basement that doesn’t exist, extra bathrooms that were never built. These mistakes are more common than you’d think, and they’re the easiest wins on appeal.
- An independent appraisal. A licensed appraiser’s opinion of your home’s market value carries significant weight, though the cost typically runs $300 to $500. Not required, but it strengthens your case considerably.
- Condition issues such as structural problems or environmental contamination that reduce value but may not be visible in mass appraisal data.
Your appeal will generally go first to a local board of review or equalization, a panel that hears evidence from both you and the assessor’s office. Present your comparable sales, point out any factual errors, and explain why the appraised value overstates what your home would actually sell for. The board can lower your value, leave it unchanged, or in some cases raise it, so don’t file unless you have genuine evidence the number is wrong. If the local board rules against you, most states allow a further appeal to a state-level board or tax court, and ultimately to the regular court system.
Why the Number Doesn’t Match Zillow
Homeowners routinely compare their assessed value to online estimates and assume something is wrong. The gap usually has a simple explanation. Your assessed value is based on an appraisal conducted months or years ago, locked at that level by assessment caps, and then reduced by the assessment ratio. An online estimate attempts to reflect today’s market using an algorithm that updates constantly. Neither number is wrong; they answer different questions. The assessed value asks what your property should be taxed on under your jurisdiction’s rules. The online estimate asks what a buyer might pay right now.
If your assessed value is higher than what you believe your home would actually sell for, an appeal makes sense. If it’s lower, you’re benefiting from the lag, the cap, or both.