It seems that it is common practice for both buyers and sellers to look to a property’s tax assessment as an indicator of its market value. I was recently asked, “What is the relationship between a property’s market value and it’s assessed value?”
I asked John Hallstead, a local independent real estate appraiser, if he would give us his opinion, and I”ll let him take it from here:
“Before answering, I think it is best to define market value as appraisers must define it: ‘The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably, and assuming the price is not affected by undue stimulus.’”
“To answer the question of a relationship of market value to assessment, I would say there is none. That is not to say all assessments are wrong; some are right on. A general assumption cannot be made about any of them in any of the counties I cover. Some assessments are 3-4 years old, but most at least one year old.
“Real estate assessments may be valuable in the whole process but should not be relied upon too heavily for actual market value. I may sometimes use them as a reference point to set parameters for a comparable sales search. In some of the more specific markets (large subdivisions) a ratio (range) can sometimes be seen of sales prices to assessment values, given enough statistical data. This may be good enough for a homeowner to get a ballpark idea of a price for their home but should not be viewed as a valid instrument in obtaining the true market value.
“The correct process involves defining the real market area and analyzing recent market data, using truly comparable sales. For listing or buying a home, my advice is to ask a real estate sales person to do the research and analysis or seek the help of someone who is a professional appraiser.”
The differnce between market value and “assessed” value is very distinct.
Assessed value is based upon a “mass Appraisal” approach, which means that a value increment is established which is then applied to a broad catagory of properties. In other words, it is not “property specific”.
Mass appraisal is based upon the premis of applying market value to a broad range of properties, where as a conventional appraisal applies market value to a specific subject property.
In Mass Appraisal (assessement), the “subject property” is a large number of parcels, whereas in conventional appraisal, the subject property is a single property.
The valuation process for each is based upon market value, the key difference is the application of the analysis.
H. Jeff Collins, IFA
What I’m still not clear on is the methodology, or lack of, that some real estate agents use to value finished below-grade vis a vis basement square footage. There is, as we all know, a huge difference in cost. And there seems to be the same issue with square footage that is located on multiple floors versus on one floor, with the latter having a higher per square foot value, or so one would think. Maybe someone from the appraisal world could demystify?