Market value

The market value is an estimate of the value of a property by the Department of Finance. The market value of a property is determined by an assessor or automated valuation model using numerous factors. The Property Division of the Department of Finance uses the three approaches to value to determine the market values. They are the cost approach, sales comparison approach and the income approach. 

The sales comparison approach is used to value residential homes-one to three families. The income approach is used to value income producing properties like rental residential properties and other commercial properties. The cost approach may be used to value new construction, renovations, and unique properties where the other two approaches may not be appropriate. 

These days most valuations are done by valuation models created by modelers who are not certified assessors. New state law dictates that assessors must be certified by the New York State Department of State. It is a good idea to review your market value and assessed value when you get the notice of property value every year. 

Check to see that your property descriptions are correct. If they are not, contact the assessor of the borough where your property is located. Automated valuation models use general factors which may not apply to your individual property. “Garbage in, garbage out” is also true here. 

Effective market value

New York State law limits how much the assessed value of a property can increase annually, then you have an effective market value. This value takes into account your capped assessed value. For Class 1 properties, it is calculated by dividing assessed value (based on caps) by 6 percent. For Class 2a, b and c properties, it is calculated by dividing assessed value by 45 percent. 

Assessed value

The formula for calculating assessed value is market value x level of assessment = assessed value. For classes 1, 2a, 2b and 2c, the assessed value is modified by caps on assessment increases. 

Actual assessed value

The assessed value before five-year phase-in requirements (for some tax class 2 and all tax class 4 properties) and/or exemptions are applied. 

Transitional assessed value 

Increases to your assessed value are phased in at 20 percent per year (except for physical changes). Applicable to all tax class 4 properties and tax class 2 cooperatives, condominiums and rental buildings with more than 10 units. 

Assessment ratio

The percent of market value used to calculate your property’s assessed value, it is also known as the assessment ratio, which depends on your tax class:

• Tax Class 1 — 6 percent 

• Tax Class 2, 3 and 4 — 45 percent

Mathew Joseph is a real estate tax consultant. He can be reached at 929-393-5773