Ch9. Property Valuation Systems — Assessed Value, Appraisals & Market Data

Property Valuation System Overview

Three distinct value concepts:
Market value: price a willing buyer pays a willing seller
Assessed value: county assessor's value for tax purposes
Appraised value: licensed appraiser's professional opinion

Key statutes and regulations:
USPAP (Uniform Standards of Professional Appraisal Practice)
Dodd-Frank Act: appraisal independence requirements
FIRREA: federal appraisal standards for federally
  regulated financial institutions

Uses of property valuations:
Tax: assessed value → property tax calculation
Lending: appraised value → loan-to-value ratio
Insurance: replacement cost value → coverage amount
Estate planning, litigation, eminent domain: market value

Assessed Value & Property Tax

Assessed value:
Value determined by county assessor for property tax
May differ significantly from market value

Assessment ratio:
Many states assess at a fraction of market value
Example: state may assess at 80% of market value

Property tax formula:
Assessed Value × (1 − Exemptions) × Tax Rate = Annual Tax

Proposition 13 (California example):
Caps annual increase at 2% per year
Reassessment only at sale or new construction
Results in long-term owners paying much less than
new buyers for comparable properties

Common exemptions:
Homestead exemption: primary residence discount
Senior exemption: age-based reduction
Veteran exemption: military service discount

Licensed Appraisals

Certified/Licensed Appraiser:
State-licensed professional who provides market value opinions
Required for federally related mortgage transactions

Appraisal approaches:
Sales comparison approach: compares to recent comparable sales
Cost approach: land value + replacement cost of improvements
Income approach: capitalized net operating income (commercial)

Fannie Mae / Freddie Mac appraisals:
URAR (Uniform Residential Appraisal Report) Form 1004
Required for conventional conforming mortgage loans

Appraisal independence:
Lender cannot pressure appraiser for a target value
Dodd-Frank AMC (Appraisal Management Company) rules

Automated Valuation Models (AVM):
Computer-generated estimates (Zillow Zestimate, etc.)
Not acceptable for mortgage lending (informational only)

Assessment Appeals

Property tax appeal:
Property owner challenges county assessor's value
Available in every US jurisdiction

Appeal process:
1. Informal review: request by owner, assessor re-examines
2. Assessment appeal board: formal hearing with evidence
3. State tax court / superior court: judicial review

Time limits:
Typically 30–90 days from date of assessment notice
Deadlines vary significantly by state and county

Evidence for appeal:
Recent comparable sales (comps)
Independent appraisal report
Evidence of property condition or errors in assessor records

Outcome:
Reduction → lower tax bill going forward
Some states allow retroactive adjustment for appeal year

Market Value ≠ Assessed Value ★★★★★ : These are different numbers. Assessed value is for tax purposes and may lag market value. Buyers should not use assessed value to estimate purchase price. Memory hook: Assessed value = tax value; market value = sale price

Assessment Appeal Deadline ★★★★★ : Property owners have a limited window (typically 30–90 days from assessment notice) to file an appeal. Missing the deadline generally waives the right. Memory hook: Appeal within 30–90 days of assessment notice

Appraisal Independence (Dodd-Frank) ★★★★☆ : Lenders cannot coerce appraisers to hit a target value. AMCs must be used for federally regulated loans to maintain appraiser independence. Memory hook: Appraiser independence = Dodd-Frank protected

Practice Quiz

Q. Why might a property’s assessed value be much lower than its sale price?

In states with assessment caps (like California’s Prop 13), assessed value can only increase by a capped percentage each year regardless of market appreciation. Long-term owners may have assessed values decades out of date relative to current market. Additionally, some states assess at a fraction of market value by statute. New buyers are typically reassessed to market value at the time of purchase, which is why two identical condos in the same building may have very different tax bills depending on when each owner purchased.

Q. What are the property tax implications of buying on June 1 versus July 1 in most US jurisdictions?

In most US states, property taxes are assessed as of a locus date (commonly January 1). The liability for the full tax year generally follows the owner of record on that date. In California specifically, the June 1 rule popularized in Korean real estate education does not apply — instead, proration of property taxes between buyer and seller is handled at escrow closing based on the days each party owned the property. Buyers and sellers should confirm tax proration terms in the purchase contract and review the prorations on the Closing Disclosure.