Why Assessed Value Matters in Real Estate

June 18, 20237 min read
Why Assessed Value Matters in Real Estate
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

  • Assessed value is the dollar value attached to a house or other property exclusively for the purpose of setting property taxes.
  • Assessed value is not the same as fair market value, which is what the property could sell for, but it is frequently based on a percentage of assessed value.
  • Most cities and states calculate assessed value as a percentage of the fair market value of the house or another property.

Assessed value is an important keyword to understand in the real estate investment space, since it involves property taxes and influences the amount for which a property will sell. Every investor and homeowner should know what assessed value is and how it works, as well as its implications.

Here is assessed value, how it is calculated, and examples of such calculations.  

What is Assessed Value?

Assessed value is the dollar value attached to a house or other property exclusively for property tax purposes. Every state in the nation has some form of property tax. Generally, the higher the property’s tax-assessed value, the higher one’s property taxes will be. 

It is the job of a government assessor to assign the property’s value and to periodically update it. Specified tax districts usually designate the government assessors, and procedures for calculating assessed value may vary. The fundamental process for assessing value is the same for all, however.

For those selling a house, the property’s tax-assessed value is its most broadly accepted dollar value and the most stable indicator of a property’s worth.

Note that assessed value is not the same as fair market value — what the property could sell for under current market conditions — but it is frequently based on a percentage of the assessed value. In any case, they each help determine a property’s worth.  

Also note that, for an owner-occupant, rather than a landlord, the assessed value may be lower, circumstances that are sometimes called what is known as a homestead exemption. While such an exemption could lower the property tax bill, it does not impact the property’s market value. 

How to Calculate Assessed Value

Most cities and states calculate assessed value as a percentage of the fair market value of a house or another property. The percentage can vary markedly, depending on the location. For example, Massachusetts has one of the nation’s highest assessment ratios for owner-occupied single-family homes, at 100 percent. Mississippi, meanwhile, has one of the lowest, at 10 percent. Typically, the percentage is between 80-90%.

Generally, the assessed value is calculated as: Market Value x Assessment Rate. However, a property’s assessed value is but one factor employed to establish property tax amounts. Some assessors calculate property taxes by using an equation such as the one below, which usually includes a millage rate:

Fair Market Value x Assessment Ratio x Millage Rate = Effective Property Tax

The millage rate is the tax rate that is applied to the property’s assessed value. Typically, millage rates are expressed per $1,000, with each mill representing $1 in tax for every $1,000 of assessed value.

Say a house has a fair market value of $300,000 in a region that utilizes a mill rate of 20 mills and a 50% assessment ratio. That house would have an annual property tax of $3,000 ($300,000 x 0.50 = $150,000, and $150,000 x 0.02 = $3,000).

Similarly, perhaps a city has a 70% assessment ratio and a mill rate of 32. The yearly property tax on a house with an assessed value of $350,000 would then be $7,840:

($350,000 x 70%) x 32/$1,000 = $7,840. 

While market value and assessment rate are essential components of appraised value, an assessor utilizes what is called a comparative market analysis to be certain they are making an accurate and fair assessment.

Note, too, that some states also levy taxes on some personal property – cars, motorcycles, mobile homes, and boats, for example — which is typically based on the property’s assessed value. 

Factors That Influence Assessed Value

Factors that go into the assessed value include market conditions, digitally generated comparable sales data, local property values, home inspection, number and types of rooms, square footage, and property features and characteristics such as outbuildings, decks, a built-in-pool, or additional garage bays.

The appraiser will likely not count interior improvements such as an upgraded bathroom or finished basement suite toward the home’s assessed value, although such improvements can raise market value quite a bit. In fact, appraisers generally do not even look at the interior of the home being appraised. Drive-by assessments are relatively common, and assessed values may even be established through public records that describe the home’s features and characteristics.

Assessed Value Put to Practice in the Real World

Here is an example of assessed value as it is put in practice in the real world. Say one’s home is assessed value-wise for tax purposes. The assessed value is put at $500,000, and the local assessment tax is 80%. Thus, $500,000 x 80% = $400,000, which is the home’s taxable value. The $400,000 will be used by the government to calculate the homeowner’s property tax bill. 

In another example, If the market value of one’s home is $150,000 and the county’s assessment rate is 80%, that would put the assessed value at $120,000. 

Significance of Assessed Value

In addition to determining the property tax amount, assessed value plays a major role in property insurance, provides a rough estimate of the home’s value, and helps governments levy the appropriate amount of property taxes. Assessed value also helps homeowners with budgeting and planning, and is important when making comparisons and, if necessary, making property tax appeals.

In terms of property insurance, assessed value helps property owners determine the amount of coverage they need. Such insurance is based on assessed value rather than market value.

Further, the government depends on such assessments to levy the right amount of property taxes, since basing such taxes off market value would make such taxes much more expensive.

Because assessed value gives an approximate estimate of a home’s value, property owners looking to resell know the minimum amount they will make, which is important for planning purposes.   

Assessed Value: Considerations

There are multiple considerations, when it comes to assessed value, namely:

  • Assessment rates. The assessment rate is a percentage of a maximum of 100% that figures in factors that could increase or decrease the value of properties in a given area.
  • Assessment periodicity. Assessments are generally updated every five years but might be conducted more often if a property is damaged or enhanced. Also, depending on the city or state involved, assessors might have to visit the properties in person periodically for assessment purposes. 
  • Appeal process. Owners who wish to dispute the assigned assessed value can seek property reassessment. This is where a site visit may be scheduled. If the homeowner seeks to appeal against what the owner believes is an excessively high tax bill, it must be done with a window of between 45 to 60 days.  However, filing an appeal does not guarantee a reduced assessment. 

Invest in Real Estate

Unlock the potential of private real estate markets.

Investing in Real Estate?

Successful investors tend to take advantage of all the information and tools they can get to make investment decisions. Investors commonly try to gain any possible advantage over other investors.

This is also true in real estate, which remains popular as a way to generate passive income outside of volatile stocks and bonds, regardless of market conditions including inflation. The alternative investment platform Yieldstreet, for example, offers both private and commercial real estate opportunities, in addition to a broad range of other asset classes. To help investors make informed decisions and maximize returns, the platform features a comprehensive but user-friendly interface in addition to experienced insights

Many of the insights touch on the importance of portfolio diversification. After all, spreading risk among asset classes and types is essential to long-term successful investing. Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

Summary

Ultimately, assessed value is important in that it allows owners of real estate to determine their property tax amount, prepare for tax payments, compare their assessed value to others, and more. While every investment carries some degree of risk, making better and more-informed decisions can help with mitigation.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022

844-943-5378

No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Plaid, Orum.io and Footprint and none of such entities is affiliated with Yieldstreet. By using the services offered by any of these entities you acknowledge and accept their respective disclosures and agreements, as applicable.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure