Assessment: Overview and Examples in Taxes

What Is an Assessment?

An assessment occurs when an asset's value must be determined for the purpose of taxation. Some assessments are made annually on certain types of property, such as business properties. Homes are often valued every year, though some taxing authorities may only do an assessment every five years. Houses are assessed according to their physical condition and comparable values of surrounding residences.

Key Takeaways

  • An assessment is an evaluation of a specific asset to determine its value.
  • The most common assessment that most people experience is the assessment of their property for the purpose of calculating the tax owed on the property.
  • Property tax assessments are based on comparable sale prices and the level of tax set by the local or state government.
  • Assessments can also be conducted on assets to determine their resale value.
  • If a property owner does not agree with an assessment, they have the right to contest it.

How an Assessment Works

The most popular form of assessment is done on properties in order to calculate the amount of property tax owed to a municipality, township, or county. These assessments are done by an assessor, who evaluates the physical structure of a property, its overall condition, land size, etc., and compares the property to the sale prices of other comparable properties in the same area. This assessment is then used to determine just how much tax is owed by the property owner.

The assessments are done by a tax assessor, who is typically appointed or is an elected official. That person will determine the values of properties in a specific area. The information gathered by the assessor is then used by local governments to set tax rates in order to support the community’s annual budget.

Sometimes the assessor will visit the property, but that's not always the case. Some states have requirements of how often they need to visit properties in order to determine their values. Most assessed values are determined by real estate data, which means an on-site visit may not always be necessary.

In some areas, the assessed value is the market value, but in others, the market value is multiplied by an assessment rate to determine the assessed value.

What if You Don't Agree With the Assessment?

Property owners do have the right to contest their assessment if they do not agree with the original value assigned by the assessor. Perhaps it's too high, or there were certain factors that were not considered in the original assessment. That's when a reassessment, or a second evaluation, can be done.

If you want to know whether your home was properly assessed, you should take a look at the assessments of comparables or any other homes sold in the area. This information can be found on several popular real estate websites or through your municipality. The other option is to hire your own appraiser to do the job. While it may be an added expense, you may get a more accurate value placed on your property.

One important factor to note that while you can disagree with the property assessment, you can't necessarily contest your property tax bill.

Assessment Value and Property Tax

Once the assessment is complete, it goes to the municipality, township, or county to determine how much you will owe in property taxes. These taxes pay for amenities used by the community including public schools, libraries, parks, swimming pools, other recreational activities, sanitation, fire, police, sewage services, and roads.

Some people believe that a low property assessment will automatically decrease their tax bill. But that isn’t always the case. Your tax bill can increase even if the assessment on your property drops, and the same can be true in reverse.

For example, say your property was assessed at $100,000 last year at a tax rate of $30 per $1,000 in value, you would have thus owed $3,000. But if your property assessment increased by 5% and the tax rate dropped to $27.78 per $1,000, you’ll only owe $2,917 this year.

Despite a jump in value, the actual amount of your tax bill dropped. Conversely, if your property assessment decreased by 5% and your tax rate increased to $32.48, you would see an increase in property taxes this year to the tune of $3,085.60.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Internal Revenue Service. "4.48.6 Real Property Valuation Guidelines." Accessed Dec. 7, 2020.

  2. State of New Jersey. "Property Tax." Accessed Dec. 7, 2020.

  3. Internal Revenue Service. "Topic No. 151 Your Appeal Rights." Accessed Dec. 7, 2020.

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.