Tax Value versus Market Value

There’s so much confusion about the difference between these two figures, yet there is a HUGE difference between them. In North Carolina, the State is required by law to re-assess every 8 years. In Dare and Currituck County, they ONLY re-assess every 8 years. I’m guessing it’s because of the limited staff the County keeps on hand and what a huge project it is. But that’s just a guess. I don’t know why they don’t do it more often than required. However…that’s beside the point.

In daily conversations I come across homeowners who think that their current TAX ASSESSED VALUE should be what the MARKET VALUE is. Well, I completely understand that line of thinking. I mean, after all who wants to pay more taxes than they should and if you’re tax bill is based on the home being worth more than you could sell it for, then that’s cause to be concerned. Let’s just keep in mind there are two parts to the tax formula. The assessed value AND the tax rate.

You see, each year the County creates their budget and based on that they figure they need to collect a certain amount of taxes from various places in order to meet that budget. They need a certain amount from sales tax, occupancy tax, transfer tax and real property tax too. So look at it this way…if they lower your tax assessment to be more in line with today’s market value, then guess what is going to happen to your TAX RATE? That’s right…it’s going up because regardless of what your home will sell for in today’s open market, they still need to collect X number of dollars from you to meet their budget. Your tax bill will be the same (if not more.) Let’s look at this example:

Currituck County tax rate is currently $.32 per $100.

Tax Value of $500,000 x $.0032 = $1,600 – Now let’s say they reduce your assessment to be more in line with today’s MARKET value, they have to raise your tax rate to something like $.43 per $100 in order to collect the same taxes.

Tax Value of $375,000 x $.0043 = $1612.50 – Is that better? At least now your tax assessment is more reflective of market value. This is likely what will happen this year as the re-assessment is due to happen for 2012.

So before you get upset about the sales price your agent quotes you because it’s so far off the tax value, just keep in mind these two definitions for clarification.

Tax Assessed Value – The value the tax department places on your home for the purpose of assessing taxes to meet their annual budget.

Market Value – What a buyer is willing to pay and a seller willing to sell for and a lender willing to lend on a property in the market today.

To find out YOUR market value today, contact me for a free analysis.