Contents
How Assessor Values Are Calculated
Assessor Values Vs. Market Values
The Assessor Value Gap
Widening Gaps Matter
Neighborhood Changes and Lags in Assessor Data
Using the Assessor Value Gap To Avoid Declining Markets
Identifying Neighborhoods Before They Trend
ATTOM’s Assessor Data as a Decision Metric
FAQs
Most investors and property experts follow trends in home sales, mortgage rates, and listings, but few pay attention to a quieter economic indicator, the assessor value gap. This indicator can be a predictor and early signal of future market shifts, particularly at the neighborhood level.
Property assessments reflect economic confidence in the market, and that confidence is affected by economic and neighborhood changes. Investors and others who monitor changes in assessed and market values can identify emerging opportunities and risks before they become visible in traditional housing statistics.
Here’s a closer look at assessor values, how they are calculated, and the economic indicator hiding in plain sight.
How Assessor Values Are Calculated
Assessor values are the official property values local governments use to determine property tax bills. They are not the same as fair market value, which is the amount your home might sell for today.
Government-assessed values take into account local property values, the property’s overall quality and condition, square footage, features, and market conditions. To determine these factors, assessors visit properties and collect comparable real estate data for the neighborhood and surrounding area.
Typically, the calculation used by governments to find the assessed value is:
Fair Market Value × Assessment Rate × Millage Rate = Effective Property Tax
The millage rate is the tax rate applied to a property’s assessed value. Millage rates are typically expressed per $1,000, with one mill representing $1 in tax for every $1,000 of assessed value. So, for calculation purposes, if the mill rate in your jurisdiction is 30, divide that by 1,000 to get .03. Then apply that figure to the calculation.
Here’s an example
Say that a house in your area has a fair market value of $400,000. The area’s assessment rate is 50% and the mill rate is 20. Using the formula shown above, the property tax would be $4,000:
$400,000 × 0.50 × 0.02 = $4,000
In many cases, the assessed value is often not reflective of the market value of a home.
Assessor Values Vs. Market Values
Most counties conduct property tax assessments and reassessments on homes and properties every 1 to 5 years depending on the county and state. These are used to set property tax rates and are based on comparable sales, building costs, and local income data.
Market values are used to determine the price of a property. So, if you are a buyer and want to know how much you’ll likely pay for a home, you’ll look at the market value. If you want to know what your monthly payments will be, including property tax, assessed value and property tax rates will give you the answer.
The market value (or fair market value) of a home is the estimated price it would sell for under current market conditions. This valuation is based on actual sales of homes similar in size, location, condition, and features. Market valuations are typically conducted either when an appraiser requests one or every 1 to 3 years, though the frequency can vary depending on market conditions and location.
While tax assessments incorporate market valuations, they tend to lag real market changes because they are conducted, at most, annually and sometimes only every four years.
Market valuations, by contrast, are driven by consumer demand. When demand for property is high, often due to positive economic sentiment, home prices increase. Conversely, when consumers are pessimistic about the economy and their purchasing power, demand and prices decline.
Because assessor market values lag real-time market values, comparing the two reveals the assessor value gap, an insightful indicator for analysts.
The Assessor Value Gap
The assessor value gap is the difference between a property’s current market value and its assessed value. The table below gives two examples of the assessor gap.
| Property | Assessed Value | Market Value | Value Gap |
| Home A | $275,000 | $$385,000 | +$110,000 |
| Home B | $400,000 | $375,000 | -$25,000 |
| For Home A, the market value for the home is quite a bit higher than the tax assessor’s value. This indicates a lag and that the tax rolls have not caught up with what is likely to be increased demand and higher prices perhaps due to neighborhood improvements.
For Home B, the market value is less than the assessed value. Again, there is likely a lag. This time there could be an overvaluation by the tax assessor due to worsening neighborhood conditions that the market reflects but the assessor’s valuations do not. |
Widening Gaps Matter
If the assessor value gap is widening, that indicates a growing trend and a change in the market. Property values are typically assessed every 1 to 5 years, but market values can change quickly without being reflected in the assessor’s records.
Value gaps can indicate hidden appreciation, rapidly rising property prices due to neighborhood changes, untapped equity – in short, investment opportunities. On the flip side, value gaps can also indicate impending drops in market values.
Fundamentally, if assessor values are viewed in isolation rather than compared with market values, investors might not recognize the growth potential of some assets.
Neighborhood Changes and Lags in Assessor Data
Some neighborhood changes will create housing demand and push up prices before the assessor data reflects the potential impact, while properties remain undervalued. For example:
- An injection of government funds to improve infrastructure, such as new roads, rail lines, an airport, schools, and hospitals. This could stimulate employment and create demand for housing from incoming workers.
- Redevelopment and gentrification can create demand for properties in an economically strong area and push up prices.
Investors and property buyers who learn of potential changes before the news hits traditional media can make timely decisions and grasp opportunities where properties are still undervalued
Using the Assessor Value Gap To Avoid Declining Markets
Just as neighborhood changes are precursors to booming markets, they can also signal a market that could become distressed. For example,
- Areas with declining populations will see increased housing supply, reduced demand, and declining market values.
- If the local economy deteriorates, local businesses and retailers may close. Declining commerce in an area lowers property prices.
The takeaway is that a growing divergence between tax assessment data and market data is an indicator of growing trends in market prices, both positive and negative.
Identifying Neighborhoods Before They Trend
Ultimately, assessor-market value comparisons can be a predictive intelligence tool rather than simply a valuation metric.
By combining assessor data with market data using artificial intelligence technology (AI), investors can identify neighborhoods undergoing change before those changes become obvious in transaction data or media coverage.
Many investors are using AI to combine assessor values, market values, transaction data, demographics, and economic indicators to create enterprise decision systems.
ATTOM’s Assessor Data as a Decision Metric
In many ways, the assessor value gap is not really a valuation metric; it is a market timing metric. Institutional investors, private equity, and governments can benefit from using this predictive intelligence to ensure they identify a growing asset value gap early and invest wisely.
The next competitive advantage may not come from predicting prices but from identifying where local valuation trends are changing first.
ATTOM is a leading provider of property data. Find out how ATTOM’s property assessor data can drive your business decisions.
FAQs
- Is a property’s assessed value the same as its fair market value?
No. Fair market value is the estimated price a buyer is willing to pay under current market conditions. Assessed value is a metric used to calculate property taxes derived by multiplying the fair market value by a local assessment rate. For example, in a state with a 25% assessment rate, a $300,000 home would have an assessed value of just $75,000 for tax purposes.
- What is the “assessor value gap”?
The assessor value gap is the difference between a property’s current market value (what it would sell for today) and its assessed value (the value local governments use to calculate property taxes). Because tax assessments are updated infrequently, a widening gap over time can reveal trends that will affect future home values.
- Why do assessor values lag behind actual market values?
Tax assessors typically re-evaluate properties only every 1 to 5 years. Conversely, market values change rapidly and are updated frequently based on immediate consumer demand, mortgage rates, and economic sentiment. This variance in frequency creates a natural data lag.
- How can a widening value gap signal an investment opportunity?
When a property’s market value is significantly higher than its assessed value, it indicates a positive lag. This can be a sign of hidden appreciation or rising demand triggered by recent neighborhood improvements that the tax assessments have not yet captured.
- How are modern investors using AI with assessor data?
Institutional investors use AI to blend assessor data with live market values, local demographics, and economic indicators. They effectively use the assessor value gap as a predictive market-timing tool to spot changing neighborhood trends before they hit mainstream media.
