Tax values of District of Columbia real estate are set haphazardly by assessors who have no official rules to go by and "apply their own procedures," D.C Auditor Matthew S. Watson charged vesterday.

Testifying at a D.C. City Council hearing, Watson and representatives of the city's apartment industry also declared that there are hidden pitfalls in the decision to increase the tax values on land at the expense of values on buildings.

Because the income that apartment owners are permitted to earn under the city's rent-control law is tied to assessments on the buildings but not the land, the shift could hasten the already sharp decline in the number of rental units, Malcolm E. Peabody of the Washington Board of Realtors asserted.

"I am most concerned as to the lack of quality control in the entire (assessment) system," Watson declared. "This is an invitation to inequities," resulting from "a lack of standards to guide performance, a lack of internal review to assure uniformity and a lack of external review to automatically insure fairness."

At the end of nearly six hours of testimony by a dozen witnesses, John A. Wilson (D-Ward 2), chairman of the council's Finance and Revenue Committee, promised a full legal review of assessment problems. But given the city's pressing need for cash, Wilson stressed that homeowners should not expect any lowered tax burden.

The hearings followed closely the mailing of 149,000 assessment notices to property owners, setting the values on which tax bills payable in September will be based. Tax bills sent recently to property owners were based on assessment notices sent out a year ago.

The assessment notices reflected an average 18.6 percent increase in values on land and buildings combined. Mayor Marion Barry told the council earlier this week that he will recommend no increase this year from the total of $196 million collected from property taxpayers last year.

Kennety Back, the city's chief tax official, and Donald Beach, the chief assessor, led off yesterday's hearing with a defense of the way the Department of Finance and Revenue now sets property values.

Values reflected in the recent notices were based upon sales values of property in each neighborhood in 1977, they said. Although professionally recognized standards are used in setting values, Back said, in the end "the appraiser has to use his judgment."

The chief problem with that, Watson said later, is that property owners have no way of finding out the basis on which the assessor decided to set the value. Without that knowledge, Watson said it is difficult to make a case for a lowered assessment in appeals to the city's Board of Equalization and Review.

"The District homeowner was further confused this year by a changed, although unpublished, application of land rates," Watson said, with the value of land -- notably vacant land -- rasing sharply.

This is unfair, Watson said, since vacant land is scarce in the District, and distorts sales values.

Back insisted that the shift of value to land is "a refinement" that should not bother taxpayers, who should be concerned only with the bottom line on the assessment notice -- the combined value of land and buildings. He said it has been easier to determine standardized values on land.

One taxpayer, lawyer Lawrence H. Mirel, told the committee that the value of a parcel of landlocked, unusable land behind his home at 8120 West Beach Dr. NW has shot upward in recent years, creating frustrationsin dealing with tax officials.

The lot, slightly less than a quarter acre, was valued at $2,967 until 1976, and was raised to $20,666 in 1977 and 1978. In the latter year, Mirel challenged the value in a lawsuti, and the city formally "admitted" in court that the value was too high -- that it should have been $5,748.

That was followed by a 1979 assessment that shot up to $25,435. The recent notice, for the 1980 tax year, has set the new value at $46,843, he said. Attempts to get an explanation have been futile, Mirel added.

Under the District government's interpretation of the law, Mirel said, a successful challenge of one year's assessment does not spill over to the next year, so he will have to appeal -- and possibly sue the city -- once more.