by Micah Rubenstein
All property has both an assessed value and a fair market value.
Fair Market Value
A property's fair market value (FMV) is a determination of what price the property would probably sell for if it were available on the open market. FMV is based on a number of factors, including size, features and condition of the property, supply and demand in the local housing market and recent market history (e.g. what similar nearby properties sold for within the past 18 months). While anyone can calculate a property's FMV, only determinations made by licensed property appraisers are considered valid by mortgage lenders and local property tax offices.
The assessed value of a property is a figure local governments use to determine a homeowner's annual property tax. It is
always a percentage of the property's FMV, but the percentage varies from state to state. Most states calculate assessed value at 80 percent to 90 percent of FMV, and then impose a 1 percent to 2 percent annual property tax on the assessed value.
California passed a law called Proposition 13 in 1978 and thereby created a property tax system different from any other state. The law not only sets every property's assessed value at 100 percent of FMV, but also sets the property's annual tax at 1 percent. Furthermore, the law states that a homeowner's property tax may never increase by more than 2 percent from one year to the next, even if its FMV doubles in value. Lastly, it defines conditions under which a property will be reassessed,
Fair Market Value Fluctuations