What Is Property Tax Reassessment?

Reassessment Explained

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Reassessment is the periodic review and revaluation of a property to determine its value for property tax purposes. During a reassessment, the assessor or hired contractor will analyze the market value of a property—as well as the current state of the real estate market and a few other factors—to determine its tax value.

Reassessment guarantees you will only pay your fair share of taxes. Learn what reassessment is, what the process looks like, and how it increases fairness in the property tax system.

Definition and Examples of Property Tax Reassessment

Reassessment is the process of revaluing a property to determine its new value for property tax determination. As part of the process, an assessor or hired contractor analyzes the property at hand, as well as any recent changes in the market.

For example, say a property was last reassessed 20 years ago for $100,000. If it is still valued at $100,000 for property tax purposes today, its owners will pay the same amount of property taxes they paid 20 years earlier.

If that property is reassessed, however, the property’s value would likely have increased or decreased over time, changing the tax rate the owners would pay. If the value is now determined to be $200,000 following reassessment, its owners would pay more in property taxes. Conversely, if the property is reassessed and its value is now determined to be only $50,000, its owners would likely now pay less in property taxes.

In this way, reassessment makes property taxes fairer across all property owners in a certain property tax jurisdiction or neighborhood. Without periodic reassessment, property owners holding similar properties with similar values on the open market could end up paying vastly different amounts of property taxes.

How Reassessment Works

In most states, property tax assessors are generally county-, city-, or township-level officials. These assessor offices are responsible for assessing and reassessing property within their jurisdiction.

Although the actual reassessment is handled at the local level, state law determines how often property in the state is reassessed. Intervals of reassessment between appraisals vary from one to 10 years, depending on the state.

When a property is up for reassessment, the property tax assessor determines the fair market value of the property based on the location and property type. The methodology for determining this value will differ based on location and property.

After the reassessment is completed, many property tax offices will notify the property owner of the new assessment results. The property owner then has a chance to challenge or appeal the reassessment if they believe it is not accurate.

Reassessment does not necessarily mean that a property owner’s property taxes will increase. If the real estate market in the area is declining, a reassessment could very well result in a decrease in the amount of property taxes an owner pays. A reassessment could also result in no change in the value of a property, as well. The results depend on both the property value and the real estate market in the area.

Some states impose significant limitations on the frequency of reassessment. For example, California’s Proposition 13 permits an inflationary increase in a property’s valuation at no greater than 2% per year, but does not permit reassessment on a property unless the property’s ownership changed or new construction was completed.

Types of Reassessment

Property tax assessors have a variety of methods through which they can value a property.

In some states, such as New York, the assessor may also apply an equalization rate to determine the actual value upon which the property taxes should be based. However, the examples below assume that these properties’ jurisdictions do not apply an equalization rate.

Market Approach

Using a market approach to reassessment, a property tax assessor will compare the property being reassessed to similar properties in the area that have recently sold. This method is often used to value residential, vacant, and farm properties.

For example, if a house was previously assessed years ago at $100,000, but a nearly identical property down the street sold last week for $200,000, then the assessor may decide that the property should be reassessed with a valuation of (or around) $200,000.

Cost Approach

Using a cost approach to reassessment, a property tax assessor will base a property’s valuation on what it would cost to construct an identical property using today’s prices for labor and materials. They will also adjust the value for depreciation and the market value of the land. Industrial, special purpose, and utility properties are often valued using the cost approach.

Let’s say a laboratory building was assessed five years ago at $100,000. If an assessor was to reassess the property, they would take into account the following factors based on present-day information:

  • Cost of materials and labor to construct an identical building 
  • Value of the land the building sits on 
  • Cost of wear and tear the building has endured over time

Income Approach

With this method, a property tax assessor will base a property’s valuation on the income it would produce if rented out to tenants. Naturally, income-producing property like an apartment building is often valued using the income approach.

The assessor considers:

  • Operating expenses
  • Insurance
  • Maintenance costs
  • Financing terms
  • Amount the owner expects to earn

In most cases of reassessment, the assessor’s office will often determine the “highest and best use” of a property to reassess its value. For example, if a hotel is being mismanaged resulting in a relatively low net income, the assessor’s office may calculate its income for reassessment purposes as though it were well-managed.

Owner-Initiated Reassessment

Property owners will occasionally seek to have their property reassessed if they believe that their property declined in value. If a property owner can show that their property is worth less than the assessed value, then their property will be reassessed at the lower value, resulting in the owner paying less in taxes.

Key Takeaways

  • Reassessment is the periodic review and revaluation of a property to determine its value for property tax purposes.
  • Assessors can use multiple methods to determine the value of a property for property tax purposes, including the market approach, the cost approach, and the income approach.
  • Property owners may likewise seek to have a property reassessed on their own if they believe it should be valued for less than the value at which it was previously assessed.