Property Tax Assessment Limits
Definition
Many states have laws to limit how much property taxes can increase each year, regardless of market value fluctuations.
Example
California's Proposition 13 limits annual increases in the assessed value of real property to 2% per year, unless there is a change in ownership or new construction. Similarly, Oregon's Measure 50 limits annual assessed value increases to 3%, regardless of market changes.
Exam Tip
Pay attention to the specific percentage limits and any triggering events (e.g., change of ownership, new construction) that can override the limits. Remember that these laws are state-specific.
Related Valuation Terms
Depreciation of Investment Property
Depreciation is an accounting method of allocating the cost of an asset over its useful life, allowing investors to deduct a portion of the asset's cost each year.
Income Approach
The income approach estimates a property's value based on the income it generates by converting net operating income into a value estimate using a capitalization rate. It is the preferred method for income-producing properties.
Highest and Best Use
Highest and best use is an appraisal concept that identifies the most profitable, legally permitted, physically possible, and financially feasible use of a property. It is the foundation of all property valuation.
Comparable Sales Approach
The comparable sales approach estimates a property's value by comparing it to similar properties that have recently sold in the same market area. It is the most widely used and reliable approach for appraising residential properties.
Cost Approach
The cost approach estimates a property's value by calculating the current cost to rebuild the improvements, subtracting accumulated depreciation, and adding the land value. It is most reliable for new construction and special-purpose properties.
Reconciliation in Appraisal
Reconciliation is the final step in the appraisal process where the appraiser analyzes the value indications from all applicable approaches and arrives at a single final opinion of value. It is not a simple average of the three values.
Frequently Asked Questions
Test Your Valuation Knowledge
Practice with exam-style questions to make sure you can apply Property Tax Assessment Limits and other valuation concepts.