Legal Definitions - assessment ratio

The assessment ratio is a percentage used in property taxation that compares a property's assessed value to its fair market value. Essentially, it shows what portion of a property's true market worth is considered for calculating property taxes.

The fair market value is what a property would likely sell for on the open market between a willing buyer and a willing seller. The assessed value, on the other hand, is the value assigned to the property by a local government for tax purposes, which is often a fraction of the fair market value.

• Example 1: Residential Home

  Imagine a homeowner's house has a fair market value of $400,000. However, the local tax authority assesses the property at $200,000 for tax purposes. To find the assessment ratio, you divide the assessed value by the fair market value ($200,000 / $400,000 = 0.50). In this case, the assessment ratio is 50%. This means that only half of the home's market value is used as the basis for calculating property taxes.

• Example 2: Commercial Office Building

  Consider a small office building owned by a business, which has a fair market value of $1,200,000. The county assessor determines its assessed value to be $480,000. The assessment ratio for this commercial property would be $480,000 / $1,200,000 = 0.40, or 40%. This indicates that the property tax for the office building is calculated based on 40% of its current market value.

• Example 3: Undeveloped Land

  A plot of undeveloped land is listed for sale at a fair market value of $150,000. The municipality, however, assigns an assessed value of $60,000 to this land for property tax calculations. The assessment ratio here is $60,000 / $150,000 = 0.40, or 40%. This illustrates that even for vacant land, the property tax is not based on its full market value but rather on a specific percentage determined by the assessment ratio.