MARKET VALUE vs TAX VALUE
As a home buyer, should you pay more than tax value for a home?
As a home seller, is tax value a good bench-mark of what my home is worth?
Market Value: The value of a home changes with the supply and demand of homes in a given neighborhood at a specific time. "Market value is the most probable price as of a specific date (the date of sale) that a property with all its rights should sell after reasonable exposure to buyers in a competitive market with the sellers under no undue duress (meaning the sellers aren't forced to sell)." The common stress factors forcing a seller to sell are: economic conditions (foreclosure and short sale), loss of employment, underemployment, forced job relocation, death, divorce and deployment.
Assessed Value: The established value of homes in a given governmental jurisdiction for the purpose of paying for the operations of the government services within the jurisdiction. "The value of a property as of a certain date (usually January 1st) according to the tax rolls of your local government jurisdiction (county or city). This value can be higher or lower than market value based on the assessment ratio, which is a percentage of market value." It is possible for the assessed tax value to be equal to, greater than or lesser than market value;
we have experienced all of the above depending upon the governmental jurisdiction and the stress factors influencing the sale of the property. "When you're looking at the assessed value vs market value of homes, in many cases you may notice that the house market value rises and falls, but the property tax value of the home usually stays stable and only changes if certain conditions occur." We are experiencing those 'certain conditions' in today's economy.
Source: http://www.home-plans-advisor.com/assessed-value-vs-market-value.html
THE SYSTEM IS BROKEN
It Is Broken: Minnesota state's budget simply could not afford the current system any longer.
Without the state's full funding local governments were faced with uncertainty. The old underfunded homestead credit will now be replaced by the
Homestead Market Value Exclusion.
The New Fix: "The
HMVE provides for a portion of each home’s market value to be excluded from its value for property tax calculations. The amount of value excluded is directly proportional to the amount of credit the home received under the old Market Value Homestead Credit (MVHC)."
Who Decides:Our local governments will decide how much is needed to balance their budgets. Property taxes are local and priorities will be evaluated at the local level.
Source: Roger Crawford, Mn State Representative
Property Taxes:
New Homestead Exclusion & Valuation Exclusion Disclosure
by Christine Berger, Vice President, Governmental Relations
MNAR has received a few questions from members about the new Homestead Market Value Exclusion (HMVE) that was created in the 2011 legislative session and if or how it relates to the Valuation Exclusion Disclosure on page five of the Sellers Property Disclosure Statement (SPDS).
The Valuation Exclusion Disclosure in the SPDS is required by Minnesota Statute § 273.11 subds. 16 and 18. The Valuation Exclusion deals with exclusions from market value due to home improvements made under the “This Old House” program, where the improvement was made before January 2, 2003. The exclusion in this instance does not transfer with the property and thus, needs to be disclosed.
The new HMVE is a recent change to how homestead property taxes are calculated. It replaces the Homestead Market Value Credit (HMVC). Under the old credit system, the credit lowered a homeowner’s property tax burden based on the value of their home. The state then reimbursed local governments for the lost amount of their levy (revenues) due to the credit. However, due to the state’s budget problems, it was rare that local governments were fully reimbursed by the state. Eliminating the credit and creating an exclusion removes the possibility of the state withholding funds and creates more stability for local governments.
The new program excludes a portion of the homeowner’s market value from the property tax calculation. The amount of value excluded is directly proportional to the credit the home received under the old law. The actual tax burden on homesteads could be lesser or greater depending upon the mix of properties in the taxing jurisdiction and the levy decisions made by local governments (for more information on the technical calculations, please see further below).
Therefore, the disclosure requirement in Minnesota Statute § 273.11 subds. 16 and 18 does not pertain to the new HMVE because the exclusion is determined every year as part of the homestead’s property tax calculation and is not directly connected to home improvements. Furthermore, the sole fact that a homestead has a HMVE does not mean that the property is subject to preferential property tax treatment. Other tax programs may apply to the property to give it preferential status.
Technical Calculations
Description: Under the old credit system, the credit amount would rapidly increase as a home value approached $76,000 with the maximum credit amount of $304. After $76,000 the credit would decrease until it was completely phased out with a home value of over $414,000. The new exclusion mimics this same scale as homes approaching $76,000 would have a rapidly increasing exclusion of value, with a home valued at $76,000 receiving a maximum exclusion of 40% of their home value from property tax calculations. The percentage then decreases and is phased out at homes valued over $414,000.
Calculations
| Old Law with Credit | New Law with HMVE |
| Market Value (MV) determined by Assessor | Market Value (MV) determined by Assessor |
| N/A | Calculate exclusion (HMVE): MV < $76K: Exclusion = 0.4 x MV MV $76K - $414K: Exclusion=$30,400 -
((MV - $76K) x.09) MV > $414K: Exclusion = $0 |
| N/A | Taxable MV = MV - Exclusion |
| Homes < $500K: MV x .1% = Tax Capacity (TC) Homes > $500K: $5,000 + ((MV - $500K) x 1.25%) = TC | Homes < $500K: Taxable MV x .1% = Tax Capacity (TC) Homes > $500K: $5,000 + ((Taxable MV - $500K) x 1.25%) = TC |
| Gross Tax = TC x total tax rate (county + city + special district rate) | N/A |
| HMVC = MV < $76K: MV x .004 MV $76K - $414K: $304 - ((MV - $76K) x .0009) MV > $414K: $0 | N/A |
| Net Tax = Gross Tax - HMVC | Net Tax = TC x total tax rate (county + city + special district rate) |
Referendum taxes are not covered here---
Tami DeLand and Steve HansenSt. Cloud MN and Central Minnesota REALTORS
Coldwell Banker Burnet
(320) 258-6675
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St. Cloud Real Estate, Condos, Homes for SaleCentral Minnesota Real Estate---
