Construction Costs And Property Tax Assessments Don't Mix

Don’t base your property tax appeal only on how much your house cost to build. Properties are rarely assessed at what they cost to build. The assessor will assume you may have paid too much or too little, and construction costs vary widely over time. Finding the right comps will always be a better argument.

I paid $50,000 to add a new bedroom to my house last year but the assessor raised my assessed value by $100,000. How is that possible? I even showed the assessor my construction cost receipts?

Congratulations! You were able to do what homebuilders do around the country every day; you added value to your home above and beyond the cost of construction. The value of your home is usually not closely related to the cost to build it.

For example, lets say you budgeted $50,000 to build your new bedroom but you ended up winning $20,000 worth of free construction material and services so the job only ended up costing $30,000. Regardless of whether you paid $30,000 or $50,000 you ended up with the same bedroom. Would you sell your house on the open market for $20,000 less and pass your winnings on to the buyer? No, of course not.

Alternatively, you could have been duped by a shady contractor and paid $100,000 to build the exact same extra bedroom. Would that mean your home was actually worth $100,000 more just because you accidentally overpaid? No, of course not.

At the end of the day your home is worth what someone else is willing to pay for it on the open market, regardless of how much it cost you to build or what improvements you’ve made. The assessor is required by law to assess your home for its fair value on the open market.