Assessed Value Has No Relationship to Market Price

Assessed Value Has No Relationship to Market Price

Junk data hurts buyers by creating distraction from understanding market value. Buyers need to know market value in order to negotiate for the fair price. Assessed value has no relationship to market price.

But, but, but…how can a property be worth more than what the town or city assesses it for? Don’t the town or city assessors know what they are doing?

Why do towns create assessed values for every property?

Every town or city has a tax rate for residential property. They also have a rate for commercial property, which is often different.

Then real property (land and buildings) in the town or city are valuated; that’s your assessment.

Owners pay that tax rate, times the assessed value of their property. Here’s an example.

For 2018, the residential tax rate in Somerville, MA is $11.32 per $1,000 of assessed value.

If a house or condo is assessed for $650,000, the property tax would be $7358 a year. (Until either the assessment or the rate changes, when it will change.)

Because no one likes to have their taxes go up, the elected officials are careful not to create conditions where there are sudden increases in property taxes for the voters. If there is more value to the buildings in town, the tax per-thousand rate can come down without reducing the municipal budget. That is what happened in Somerville in 2018. The 2018 Somerville residential tax rate of $11.32 per $1,000 of assessed value is a decrease of 35 cents (2.8%) from 2017. (The 2017 tax rate was $11.67 per $1,000 of assessed value.)

How are assessed values created for all the properties in town?

Every two years, most cities and towns reassess the real property in town. They can’t possibly look inside all the houses and buildings, but assessors go out to a sampling of them, then extrapolate. The town total for real estate value is figured. Then a rate that covers the budget is set.

  • Assessed values are based on a sampling of properties. It can be significantly wrong, especially in areas like ours where properties are about a hundred years old and vary widely in regard to condition.
  • Assessed values of renovated properties do not account for improvements made just before the sale. (Especially true of renovationed/flipped places.)
  • Assessed values lag behind the increasing values, when a real estate market is rising. A lot can change in our markets in a two-year period.
  • Assessed values tend to be conservative (low) to discourage property owners from filing for an abatement; that is a reduction of assessed value and the associated property tax.

Repeat after me: “Assessed value has no relationship to market price.”

If I haven’t convince you yet, here is a random sample of recent sale prices, taken in a two-week period this April. One is all the single family houses in a suburban town. The other is condos in a small city. The ones market “unknown” are new construction or conversion, which did not have a tax assessment set while the property was marketed.

Single family houses:

Sale price $700,000. Assessed value $572,400

Sale price $655,000. Assessed value $478,500

Sale price $690,000. Assessed value $429,800

Sale price $775,000. Assessed value $543,300

Sale price $729,000. Assessed value $601,800

Sale price $860,000. Assessed value $623,300

Sale price $875,000. Assessed value $603,300

Sale price $887,000. Assessed value $574,900

Sale price $851,000. Assessed value $711,800

Sale price $855,000. Assessed value $686,200

Sale price $888,000. Assessed value $799,900

Sale price $971,000. Assessed value $649,100

Sale price $1,305,000. Assessed value $875,500

Sale price $1,650,000. Assessed value $1,267,500

Condos:

Sale price $492,000. Assessed value $390,100

Sale price $510,000. Assessed value $434,900

Sale price $575,000. Assessed value $432,300

Sale price $504,000. Assessed value $337,500

Sale price $580,000. Assessed value $477,600

Sale price $625,000. Assessed value $454,400

Sale price $634,100. Assessed value unknown

Sale price $649,000. Assessed value unknown

Sale price $670,000. Assessed value $578,500

Sale price $725,000. Assessed value $463,000

Sale price $715,000. Assessed value unknown

Sale price $772,000. Assessed value $584,500

Sale price $750,000. Assessed value $652,700

Sale price $754,321. Assessed value unknown

Sale price $787,000. Assessed value $567,600

Sale price $900,000. Assessed value $517,800

Sale price $947,600. Assessed value unknown

Sale price $950,000. Assessed value $772,300

Sale price $949,000. Assessed value unknown

Sale price $1,069,000. Assessed value unknown

Sale price $1,050,000. Assessed value unknown

 

Repeat after me: “Assessed value has no relationship to market price.”

 

By |2018-05-06T13:54:20+00:00May 23rd, 2018|Categories: Buying trends, Market data and conditions|Tags: , , |

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