The equalization ratio can be used to determine what percentage of fair market value an assessment should be. The equalization ratio is applied against the assessed value to yield the equalized assessed value, or, equalized assessment. Similarly, the equalization ratio divided into the assessed value yields the equalized assessment.
In theory, the equalized assessment should equal fair market value. If the equalized assessment exceeds fair market value, the property may be a candidate for an abatement.
The New Hampshire Department of Revenue Administration develops multiple equalization ratios applicable to property values; however, generally speaking, the “median ratio” is the preferred method for determining whether a property has been assessed proportionally to other properties in the same municipality.
A private appraisal ordinarily will identify a property’s fair market value without regard to equalization ratios or other municipal assessment adjustments. To compare apples-to-apples, a taxpayer needs to convert the municipality’s assessed value to fair market value. Here is the formula, where “AV” means the assessed value, “ER” is the equalization ratio, “EA” is the equalized assessment, and “FMV” means fair market value:
AV/ER = EA
For example, using an AV of $2,500,000 and an ER of 102.5%:
$2,500,000/1.025 = $2,439,024
Using an AV of $2,500,000 and an ER of .97%:
$2,500,000/.97 = $2,577,320
To convert the equalized assessment (the municipality’s equivalent of fair market value) into assessed value:
(EA)(ER) = AV
Using the same figures as above:
($2,439,024)(1.025) = $2,500,000
($2,577,320)(.97) = $2,500,000
In a rising real estate market, the ER tends to be less than one.
In a falling market, it tends to be greater than one.