Tax Appraisal vs. Actual Value of Land
- Craig Kaiser
- Aug 1
- 5 min read
When it comes to understanding the worth of a piece of property, two critical terms often come up- tax appraisal value and actual market value. While they both represent an assessment of a property's value, their purposes, calculation methods, and impacts are entirely different. This distinction is crucial for property owners, buyers, and sellers to make informed decisions about real estate. Below, we break down what each term means, why they often differ, and how to effectively manage these discrepancies.
Key Takeaways:
Land Value Importance: Understanding land value is crucial for property owners, investors, and developers, influenced by location, zoning, and market conditions.
Tax Appraisal Value:
Determined by local government for tax purposes.
Based on property size, location, and characteristics.
Offers uniformity but may not reflect current market conditions.
Can be outdated or incomplete, affecting accuracy.
Actual Value:
Reflects market forces like supply and demand.
More accurate to the current market but harder to calculate.
Influenced by market trends, property characteristics, and external factors.
Tax Appraisal vs. Actual Value:
Tax appraisal provides consistency but may not show true market value.
Actual value is crucial for selling or leasing decisions.
Tax Appraisal Value & Actual Property Value
Before you can compare a tax appraisal (often called the assessed value) to the actual or market value of land, you first need to understand what each term means. These two figures serve very different purposes and are calculated using entirely different methods.
1) Tax Appraisal Land Value
The tax appraisal value is an estimate of a property’s value determined by a government assessor. This value is primarily used to calculate property taxes owed by the owner. Local governments depend on property taxes as a major revenue source, so tax appraisal values are carefully regulated to ensure fairness across property owners in a community.
How Property Tax Appraisals Are Calculated
Tax appraisal values are typically determined based on location, property size, comparable property values, and regulatory standards:
Location: Properties in areas with better infrastructure, schools, and proximity to amenities generally receive higher appraised values.
Size and Characteristics: Lot size, square footage, and features like pools or garages can influence this value.
Comparable Properties: Recent sales of similar properties in the area play a role in estimating value.
Regulatory Standards: Many jurisdictions assess properties at a percentage of market value, such as 80-90%.
Purpose of Tax Appraisals
The primary function of a tax appraisal is to ensure equitable taxation. By estimating property values regularly, a municipality ensures that property taxes remain proportional to the worth of each home or lot. For instance, if the assessment shows your property is worth $250,000, and the local tax rate is 1.5%, your annual property tax would be $3,750. However, tax appraisal values are not designed to reflect a property’s real-time market worth.
2) Actual Value of Land
The actual market value of land is the price someone is willing to pay for it on the open market. It reflects the economic reality of a property’s worth at a specific point in time, shaped by market dynamics, buyer demand, and other external factors.
Factors Influencing Actual Market Value of Land
Unlike tax appraisal values, which rely on structured formulas, actual market value depends on less predictable elements:
Current Market Trends: High demand and low supply can drive prices upward, while a flooded market can reduce values.
Economic Conditions: Interest rates, job growth, and overall economic health affect buyers’ purchasing power.
Aesthetic and Development Potential: Properties with desirable views or strong potential for future development often command premium prices.
Buyer Motivation: If a particular buyer finds unique value in a property, they may pay above market rate, pushing up its value.
Purpose of Market Value
Market/ actual value is the price benchmark for transactions. It’s critical for buyers and sellers looking to negotiate fair deals, and it’s also widely used by lenders when determining loan amounts. For example, a bank won’t approve a $400,000 loan for a property only worth $350,000 in the current market.
What is the Difference Between Property Value and Appraisal Value?
The differences between tax appraisal value and actual value can have a significant impact on property owners, as the two values can differ substantially. Tax appraisal value is a standardized method that provides consistency and predictability. However, it may not accurately reflect the true market value of a property.
An appraised value represents the worth of a property as determined by a professional real estate appraiser at a specific moment in time. In contrast, market value is a dynamic figure influenced by broader market trends and economic conditions. Ultimately, market value is shaped by buyers, who determine what a property is worth based on how much they are willing to pay.
Comparative Market Analysis to Determine the Value of Land
Something real estate agents do along with a tax appraisal to find the actual value, is a comparative market analysis. A comparative market analysis (CMA) is a tool used to estimate the market value of a property. It involves comparing the property to similar ones in the same area. A CMA is an analysis of properties similar to the subject property. Factors such as size, location, age, and condition are taken into consideration. Other characteristics may also be relevant.
The goal of a CMA is to identify properties that are most similar to the subject property and then adjust for any differences in order to arrive at an estimated value for the subject property. Real estate agents often use a CMA for two purposes: To help sellers decide on a listing price for their property. To assist buyers in determining a fair offer price for a property they are interested in buying.
A CMA is not a formal appraisal, but rather an estimate of a property's value based on recent sales of comparable properties. It can be a useful tool for gaining a better understanding of the current real estate market in a particular area and can help inform decision-making when it comes to buying or selling a property.
Final Thoughts: How to Discover Land Value
Determining land value requires a careful consideration of both tax appraisal value and actual value. While tax appraisal value provides consistency and predictability, actual value is more reflective of the current market conditions. Property owners must understand the differences between the two values and take steps to ensure their property is accurately valued to make informed decisions about their real estate investments
LandApp makes evaluating land values easy for real estate professionals and landowners with our free Property Reports. By finding a parcel on LandApp's map, you'll receive a free land value estimate and estimated lease values for a specific parcel for clean energy, carbon credits, and more. To calculate the estimated property value and lease values, various factors are taken into consideration, like location, proximity to energy grid infrastructure, flood zones, and more.
With LandApp Pro, these Property Reports can also be customized with a real estate professional's own branding and messaging. These reports are great tools for land professionals to use to teach their clients about their land, or if they are looking to expand their client base.