Assessed Value to Taxes
The Assessor determines the assessed value effective on January 1st of each year. That value is not taxed until eighteen months later.
Assessed values on all property classes except agricultural are based on market value as determined by “arms length” sales within the county. Assessed value is intended to be within five percent more or five percent less than what the property would sell for on the open market. An arms length sale is between a willing seller and a willing buyer. Auction sales and those between relatives are not considered to be arms length. If assessed values for a class of property are running higher or lower than the five percent margin, an equalization order from the Iowa Department of Revenue and Finance is applied to that class of property.
Classification of Property
The five classifications are residential, commercial, multi-residential (new 1-1 2015 & removed 1-1-22), industrial and agricultural.
With the exception of agricultural land and outbuildings and qualifying Section 42 facilities, all properties are assessed at 100% of their market value (willing buyer – willing seller concept please see Chapter 441.21 – Code of Iowa). Dwellings and associated structures located on agricultural parcels are also assessed at 100% of market value.
The agricultural land and all agricultural outbuildings (i.e. barns. loafing sheds, confinements) are assessed based on their productivity value. This productivity value is based upon a five-year average of income, less expenses, capitalized at a statutory level. You should remember that this valuation approach includes the land and outbuildings as a single value unit. Soil types, slopes,erosion factors and physical land characteristics also contribute to the valuation equation.
Here are some simple classification rules:
- The use of the property on January 1st determines the classification
- Industrial: a facility that adds value to or changes the form of a raw material
- Commercial: property used for income; classic definition
- Multi-Residential: (no longer a classification 1-1-2022)
- Residential: one or two living units
- Agricultural: parcels used primarily in good faith for agricultural purposes
What is Market Value?
Market value of a property is an estimate of the price that it would sell for on the open market on January 1st of the year of assessment. This is sometimes referred to as the “arm’s length transaction” or “willing buyer/willing seller” concept.
To estimate the market value of your property, the Assessor generally uses three approaches. The first approach is to find properties that are comparable to yours which have sold recently. Local conditions peculiar to your property are taken into consideration. The assessor also uses sales ratio studies to determine the general level of assessment in a community, in order to adjust for local conditions. This method generally referred to as the market approach and usually considered the most important in determining the value of residential property. The second approach is the cost approach and is an estimate of how many dollars at current labor and material prices it would take to replace your property with one similar to it. In the event improvement is not new appropriate amounts for depreciation and obsolescence would be deducted from replacement value. Value of the land then would be added to arrive to the total estimate of value. The income approach is the third method used if your property produces income such as an apartment or office building. In that case, your property could be valued according to its ability to produce income under prudent management; in other words, what another investor would give for a property in order to gain its income. The income approach is the most complex of the three approaches because of the research, information and analysis necessary for an accurate estimate of value. This method requires thorough knowledge of local and national financial conditions, as well as any developmental trends in the area of the subject property being appraised since errors or inaccurate information can seriously affect the final estimate of value.
Why Values Change
A change in the value of a property can be from new construction or building removals, but it can also come from changes in market value that are caused by inflation, deflation (recession) or economic changes within a small neighborhood area. State law requires that all real property be reassessed every two years. The current law requires the reassessment to occur in odd numbered years. The assessor estimates the market value only after researching sales and completing sales ratio studies which show market trends. If the assessor does not adjust to changes in the market, the Department will issue equalization orders.
State Equalization Orders
Iowa Department of Revenue is responsible for “equalizing”. The Department:
- Compares the assessor’s abstracts to the sales assessment ratio study
- If assessment (by property class) is 5% or more above or below the sales ratio study, assessments will increase or decrease
- There is no sales ratio study for agricultural or industrial property
By law, every two years the Department is required to “equalize” property tax assessments for all property classes in all assessing jurisdictions. Equalization is accomplished by increasing or decreasing the aggregate valuations of certain classes of property within each assessing jurisdiction. Equalization helps ensure that that all classes of property have been assessed at the value according to state law and that taxation is applied equitably statewide. An equitable assessment level among counties is also necessary to ensure fair distribution of school aid and other state services. There are assessors in 99 counties and in eight cities, for a total of 107 assessing jurisdictions. The Department equalizes the following classes of property: agricultural, residential, and commercial.
The Director of Revenue and Finance issues tentative equalization orders about August 15th and final equalization orders about October 1st, in odd numbered years. The orders are sent to the county auditor who will publish the equalization order.
ROLLBACK RATE INFO
After the auditor gets the real estate file, the Director of Revenue and Finance determines the “rollback”, according to the Code of Iowa section 441.21, for agricultural, residential, commercial, industrial, railroad and utility property. This percentage is applied to all parcels in the real estate file. The new value is the “taxable value”.
The rollback rate is a statewide rate set annually for each property class by the Iowa Department of Revenue. More than 20 years ago, residential property values were rising quickly. To help cushion the impact of high inflation, the Legislature passed an assessment limitation law called rollback. Increases in assessed values for residential and agricultural property are subject to this assessment limitation formula. If the statewide increase in values of homes and farms exceeds 3% due to revaluation, their values are “rolled back” so that the total increase statewide is 3%. Rollback is also available for industrial and commercial property when necessary. This does not mean that the assessment on your home will increase by only 3%. The rollback is applied on a class of property, not an individual property. This means that the statewide total taxable value can increase by only 3% due to revaluation.
Tax Levies and Assessed Values
There are a number of different taxing districts in a jurisdiction, each with a different levy. Each year the County Auditor determines for that district a levy that will yield enough money to pay for schools, police and fire protection, road maintenance and other services budgeted for in that area. The tax levy is applied to each $1,000 of a property’s taxable value. The value determined by the assessor is the assessed value and is the value indicated on the assessment roll. The taxable value is the value determined by the auditor after application of state-ordered “rollback” percentages for the various classes of property and is the value indicated on the tax statement. When comparing the value of your property with other properties always compare with the value on the assessment roll or the assessor’s property record cards and not the value indicated on the tax statement.
The Treasurer collects the tax dollars that the levies generate and apportions the dollars received back to the schools, cities, area colleges, townships, fire districts, county and state according to each budget.