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Formula – Assessment Ratio
P / A = R
P – Asking price
A – Assessed value
R – Assessment ratio
It is a well-known fact that property transaction prices seldom, if ever, matches the assessed value. And in a lot of cases, the 2 figures can vary widely.
Assessed value is the value the authorities place on a property for the purpose of property tax calculation.
With this in mind, the difference between asking price and assessed value provides a good indication of how optimistic or pessimistic a market currently is.
More importantly, it provides the investor with a basis for observing inconsistencies or patterns between asking price and assessed value.
R is expressed as a percentage.
Because this formula for assessment ratio does not take into account of several important real estate variables, especially time, an adjusted assessment ratio is often used for a more accurate reflection.