Before your county or taxing authority can tax your property, they must know how much your property is worth. Appraisal is the process of determining your property’s value.
You have the right to have your property correctly appraised: your property cannot be taxed significantly differently from similar properties in your area.
But how does this appraisal process work? Should you be watching out for some Man From the Government in a black suit and bowler hat slinking around your backyard?
Three Methods
No, our tax money does not pay for mysterious government agents to visit every single piece of property. Instead, three common methods to value property are:
- Market Data Comparison
- Income
- Cost
Market Data Comparison
This is by far the most common method of appraisal for residential property. The tax authority looks at the selling prices of properties similar to yours. Did your neighbor just sell his home for $100,000? Same with the other people in your neighborhood who recently sold homes? If their homes are about the same as yours, your home will be valued at $100,000.
This gives you a good opportunity if you feel like you’re taxed too much. When protesting your appraisal rate, look at the market value of the properties around you.
To compare your home’s appraisal to others, look for homes similar in location, lot size, improvements, age, condition, access, amenities, views, easements, deed restrictions, and legal burdens affecting a property’s ability to be sold.
Income
For properties that make money–like offices, hotels, or retail stores–the income approach to appraisal looks at how much money an investor would be willing to pay for this property as he or she anticipates future income from the property.
In other words, for an office that generates $1 million in income each year, how much would an investor pay to own that office? That amount is the appraised value.
Cost
Some properties are not sold frequently or–like new buildings–are still under construction and therefore have no data on anticipated income or market comparison. For these, the cost method of appraisal is used. The appraiser calculates how much it would cost to replace this property with one equally useful.
Protesting Appraisal
Over-appraisal (making your property taxes higher) is forbidden by law, so you have the right to protest.
To protest your appraisal, look at our post series on how to protest your property’s value.
