What is market value?
The market value of your property is simply the probable price that it would sell for in an arm's length transaction between a willing buyer and a willing seller. In Michigan, market value is defined as True Cash Value.
DETERMINING A PROPERTY'S VALUE
Determining a property's value is the Assessor's job, and is required for every piece of property, no matter how large or small. Also, each year the Assessor has to do the whole thing all over again, because the market value of almost everything changes from one year to the next.
The Assessor is required by state law to assess at 50% of true cash value all assessable property, as of December 31. This includes:
- Commercial properties
- Factories
- Homes
- Personal property (machinery and equipment for commercial and industrial properties)
- Vacant land
How are properties appraised?
To find the value of any piece of property, the Assessor must first gather all pertinent information in the community, such as real estate sales, construction costs, rental incomes, operating expenses. Interest rates and any other factors available. Utilizing the information collected, the Assessor can then go about finding a property's value in three different ways:
- Sales Comparison Approach: The first way is to find properties like yours, which have sold recently. Their selling prices must be analyzed very carefully to get at the true picture. One property may have sold for more because the buyer was in a hurry to occupy the property and would pay any price. Another may have sold for less because the owner needed cash right away and took the first offer.
- Cost Approach: The second way the Assessor values property is based on how much money it would take, at current material and labor costs, to replace your property with one just like it. If your property is not new, the Assessor must also determine how much it has depreciated due to normal wear and tear or other negative factors. In addition, the Assessor must estimate how much a lot like yours would be worth if vacant.
- Income Approach: The third approach measures a property's value by its ability to generate net income. In most cases, this approach is not used for residential property unless the home is used as a rental.
How do I read my Assessment Notice?
Every year you receive an assessment notice indicating changes in the assessed value and the taxable value of your property. The assessed value represents 50% of the estimated market value of your property and the taxable value indicates how much of that value you will pay taxes on. It is important that you review your property assessment record for any errors. The notice indicates the dates and times the Board of Review is in session to hear protests to the assessed value of your property. Any evidence you can provide to the Board of Review as to why you feel the assessment is incorrect makes the appeal more effective.
Why does the assessed value change from year to year?
The assessed value must reflect 50% of market value. As market values change, so does the assessment.
For instance, if you add a garage to your home, the assessed value would increase. However, should your property be permanently damaged by fire, the assessed value would decrease. Property owners have a responsibility for reporting any changes to their property that would affect values. If you obtained a building permit, our office will be notified by the Building Inspector's Office.
What are assessed/state equalized, capped, & taxable values?
This describes the different values that the Assessment Department places on your home each year.
The passage of Proposal A in March of 1994 drastically changed the property assessment and taxation system. Some of the changes are hard to understand. One such change is the “taxable value cap.” The language in Proposal A stated that starting in 1995, the taxable value can be increased only by the amount of the Consumer Price Index (C.P.I.) or 5% (whichever is less) and for construction changes. However, other laws still require that the state equalized value (S.E.V.) is to be 50% of the current market value. Since 1982, the S.E.V. and assessed value have been virtually the same. The capped value and the S.E.V. could be totally different.
As a result, there will be three different “values” recorded for each property: state equalized value, capped value, and taxable value.
The Assessor is still required to estimate the market value of every property and record 50% of that as the assessed value (eventually referred to as S.E.V.). In addition, the Assessor is also required to multiply individually each previous year's taxable value by the Consumer Price Index (C.P.I.) to calculate each individual capped value. The lesser of the assessed value and the capped value will be the taxable value for that property. Structural items not previously assessed, for example, new construction, are also added to taxable values.
In most cases, a property's taxable value will not be increased more that the previous year’s taxable value multiplied by the C.P.I. Taxable value can not be higher than the S.E.V.
Taxable value can still increase even if assessed value decreases as long as taxable value does not exceed assessed value.This “capping” process will continue annually until the ownership is transferred.
The taxable value will be used for the calculation of property taxes. When a transfer of ownership occurs, the taxable value the following year will be based on the S.E.V. that is calculated annually in the year following the sale.
In Summary:
- State Equalized Value (S.E.V.) equals 50% of the Appraised Market Value.
- Capped Value equals last year's taxable value increased by the Consumer Price Index (with a maximum of 5%) plus construction changes.
- Taxable Value equals the lesser of the State Equalized and Capped Values. The Taxable Value will be used for the calculation of property taxes.
Why do assessments go up when a property hasn't changed?
Since assessments must be set by market value, changing real estate values in the community will be reflected in the assessments. Market value is a product of the prices paid for similar properties. As prices increase/decrease, so does market value.
All properties do not change in value to the same degree. Many factors influence values. Those properties with water or scenic views, for example, may well increase more rapidly than others or maintain value as others decline.
How do you determine your tax bill?
Your property bill is the end calculation of multiplying your taxable value by the millage rate. The Assessor simply reports the current assessed value and taxable value of your property. You determine the amount of the tax by voting for, or against, local millages.
Remember: A general increase in assessment can be negated on the tax bill by a general decrease of the millage rate.
What are your rights and responsibilities?
If your opinion of the value of your property differs from the Assessor's, by all means, go to the office and discuss the matter. The staff will be glad to answer your questions and explain how to appeal if you cannot come to an agreement. The Assessor's Office relies on the property owner for information. You can help by providing accurate information.
