This is part of a series about local budgets and property tax. View the series landing page here.
In advance of my upcoming property tax appeals workshop on March 26th, I’ve been thinking about how to distill property tax appeals math in the most intuitive way possible. And in my view, “implied” market value is an intuitive lens.
A taxpayer is supposed to be taxed according to “true” value. Yet the tax bill contains “assessed” value. This disconnect is where “implied” market value can be helpful as you think through the appeals process. Implied market value can be thought of as: what the tax office thinks your “true” value is* and it is computed as:
Implied market value = Assessed value divided by the equalization ratio where the equalization ratio is the assessed value of the tax base divided by the market value of the tax base
Here is how this helps with property tax appeals: if you compute your implied market value and it looks much higher than what your property is actually worth (its ‘true’ value), then it may be worth digging into the process of the property tax appeals process.
Let’s step through an example to illustrate this from the NJ Assessments database.
A single home example to illustrate the math
Recent usable home sales are published in the tax database and I found one home in Jersey City with the following profile (address is redacted):
- Assessed value in 2022 of about $427,000. This was the assessment recorded in the 2018 revaluation.
- The home sold in 2022 for about $430,000. This was its true market value because it was a third party sale (the tax records track third party vs related party sales).
On its face, this may appear normal because assessed and sale value are approximately the same. But here is where we need to pause and ask: what’s the municipal-wide relationship of assessed-to-sales values? This municipal average – called the “equalization ratio” – is a legally-defined, mathematical factor (think of it as a “tax fairness lens”) – through which we have to evaluate our own, property-specific assessed-to-market value relationship.
In NJ, the equalization ratio for calendar year 2023 was pegged as of Oct 1, 2022 (the public data is here). And from this public data, we can see:
- The equalization ratio in Jersey City was 82.91% in 2022. This means that in Jersey City in 2022, on average, assessed values were only 82.91% of market values.
Now we can use this equalization ratio to back into implied market value for our property in 2023:
The implied market value is Assessed Value $427,000 / Equalization Ratio 82.91% = $515,016
Another way to interpret this is:
The tax office has this home’s assessed value as $427,000 because that is what was established in the 2018 revaluation. Thus the implied market value of this home in 2022 is $516,016. Because the implied market value of $516,016 in 2022 is higher than the true market value of $430,000, the taxpayer may want to consider a property tax appeal to lower the assessed value
The visual below shows this, and you can also plug in your own assessed value to personalize the learning.
Up next:
Check out my next post which looks at Chapter 123 law and includes an interactive learning visual.
* Addendum – Monmouth County
The concept of “implied market value” is included in a 2019 Monmouth County Board of Taxation report here. The report detailed the implementation of a new model of assessment maintenance (keeping assessed value in sync with market value) called the Ch 15 Assessment Demonstration Program. The Monmouth County report explained “implied market value” using a property from Keansburg as an example:
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