NH municipalities do not reassess your property every year. It is expensive for a municipality to re-evaluate an entire city or town. As a tax payer you also want to minimize municipal spending wherever possible. Accordingly your city or town may re-evaluate your residence once every five years or so. In the year that the municipality re-evaluates your property it should be at 100% of the market value. Meaning, the tax assessment should equal the fair market value of your property in the year that the town re-evaluates.
However, because the real estate market is dynamic and changes, after one year it is possible for the assessed value of your property to differ from market value.
In four years of market change your assessed value and market value can differ greatly. To “equalize” this disparity, without having to go through the cost and expense of re-evaluating the entire town or city, the municipality will publish an equalization ratio that will show the difference between market value and assessed value. And as long as every property owner in the municipality is equally over-assessed or under-assessed then there has been a fair and equitable distribution of the tax burden.
How is the equalization rate calculated? There is a very detailed manual for how a municipality is to develop an equalization ratio. It is statically complicated however I’m going to simplify it here for clarity purposes. Basically, when a property sells, the transfer (the deed of ownership) is recorded at the registry of deeds. The registry of deeds then sends a copy of the deed to the town or city that it occurred in. Using the tax stamps on the deed, the municipality calculates the sales price of the property and then compares it with what it has the property assessed at.
For example: A property sells for $200,000. The town has it on record as being assessed for $215,000. Then the tax assessment is 107.5% of market value. The town will do this repeatedly throughout the fiscal year for each deed it receives from the registry. At the end of the year the town will arrive at a statistically credible equalization rate. If as in this case the median equalization rate is 107.5% then as long as your property is assessed at 107.5% of market value then you are assessed correctly as everyone in town is assessed the same. Again, this is a generalization. Deed transfers that are foreclosures, distressed sales, family transfers, or general “outliers” are typically omitted from the equalization study.