Assessed Valuation

Reading the paper yesterday an article caught my attention

A couple bought a forclosure property for $189,000 reduced from an initial market value of $260,000. Not a bad deal.
Assessed Valuation of the newly aquired property $259,000. Homeowner is upset that his tax rate is too high because his home is overvalued. Homeowner states that the home is not in perfect condition and needs substantial repair; furthermore, if the property value was $259,000 then somebody would have bought the property at a higher price than the $189,000 that he paid. Clearly the home value is only $189,000, so the owner is disputing the Assessed Valuation per county rules.

Here lies the dilema that I see:

  1. Counties would like high valued property for tax purposes.
  2. The owner would like the Assessed Valuation as low as possible for tax purposes.
  3. When time to sell the owner would like the appraised value as high as possible for maximum return on Investment.
    Clearly a case of having your cake and eating it too for the home owner.

Proposed sollution: or something like it.

  1. Home is initially placed on market for $259,000
  2. Home sells for $189,000
  3. All surrounding homes have sold in the past 5 years averaging $225,000
  4. County Assessor is required to value the home at an averaged cost of sale per neighborhood. (($225,000 + $189,000)/2) = $207,000 (to keep things simple for this example)
  5. Assessed value fluctuates + / - 5% over the next 15 years.
  6. Owner has appraisal done for possible sale of the home. Appraisal comes back at $280,000.
  7. Owner is required to list his home for no more than the Fair Market Value of ((Average assessed value of past 5 years + Current Appraisal)/2)… (($207,000 + $280,000)/2= $243,500

This way the homeowner does not enjoy the benifit of both lower taxes and the ability to sell the house for a much larger amount.

I used to work for a tax appraisal district in Texas for a while, and the reality is, if the assessor has it assessed for more than they just bought it for, then the new buyer has a good argument. The value of the property is what it can and will sell for, not what an appraiser or assessor say it is.

When they get it fixed up and put on the market, the assessor can come back and re-appraise the property at that time if they want or need to. Otherwise they wait until it sells and use that as a new valuation.

As to having his cake and eating it too, more power to him.

what about the 50k he puts into the home in upgrades and repairs, where does that factor in and come out.

Assessed Value for Taxation purposes is different than the Fair Market Value of a property at the time of (re)sale.

One (Assessment) is done every several years (between 5 and 12 years depending on where you live) and is based on that particular timeframe whereas FMV is a meeting of the minds between a ready, willing and able buyer & seller operating in an open marketplace during an arms length transaction after reasonable exposure of the property to said marketplace at a given moment in time.

One (valuation) has little to do with the other.

Actual property values are fluid and can change very rapidly depending on current market conditions, interest rates, the motivation of a particular buyer or seller, etc. Assessments are simply a gauge to measure the overall Grand List to set tax rates without having to reappraise every property in town every year; which would be total chaos and very expensive.

A municipality can value every property in town for only 10 Bucks if they want to; all it will mean is a serious increase in everyone’s mill (tax) rate to make the budget/nut required to operate the town.

If the owner didn’t like the tax rate then they should have bought elsewhere, or a smaller house…

Al in TN

Taxing a person’s home more if the home is worth more is as stupid as taxing high-income earners at a higher rate than low-income earners. Governments should not be creating disincentives for improving property or working harder.

All that is true, it can be, and usually is assessed at less than market value. Very seldom if ever does an assessment stand at more than what the property was just purchased at…

>>>Very seldom if ever does an assessment stand at more than what the property was just purchased at…>>>

It depends on when the (tax/town) revaluation was done.

For example, in Wethersfield & Rocky Hill, CT they had revaluations that took effect in 1989, the previous all-time market peak. Come 1992/3 every house in town had actual market values that were less than the town assessments following that period’s real estate crash (which was much worse than our current crash IMHO, except maybe in Florida).

It made for relatively low mill rates (which ended up being great for car taxes at the time), until, the next revaluation period when the new assessments reflected the current, lower, values of the time (right before the next run up in prices started), which of course also included a decent sized increase in the town’s mill (tax) rates to compensate for the new, lower assessments.

It’s all relative, and the tax man always gets his money.

The people who really do get hosed are folks who purchase new construction. THAT valuation for tax assessment purposes is often tied into what they actually paid for the property, regardless of when the last townwide revaluation was done; they get stuck until the next revaluation period evens things out.

The buyers in the example (of this thread) might be able to make enough of an argument to get their assessment lowered somewhat but they will never get it lowered to what they just paid for the place. I’ve done dozens and dozens of appraisals for people who have tried it over the years, most anyone usually gets knocked off their assessment/taxes is maybe a token ten percent to get the owner’s off the assessor’s back…

Al in TN

Without necessarly knowing all of the ins and outs of how Assessors come to the decision of property valuation, or how othen the process is done, This particular article just started me thinking of some whatif type of scenarios that would possibly make both sides satisfied somewhat.

In this particular case the reason it made the paper is because property valuations for this area were completed this year. The new homeowner as well as many others are somewhat upset as to the current assessed value of their home not matching what the current market is.

The article further went on to state that owners could request a home inspection to assist in identifying the defects of thier home is help in an argument in lowering thier assessed value.

Upon contacting the local clerk of court to identify if a city inspector was used, they had a list of local home inspectors, or the owner was on thier own to find an inspector, I found out that it is not actually a home inspection. A city employee is sent out to look at and acknoledge or disput the proposed defect.

No option of revenue stream here MOVE ALONG lol

>>>In this particular case the reason it made the paper is because property valuations for this area were completed this year. The new homeowner as well as many others are somewhat upset as to the current assessed value of their home not matching what the current market is.>>>

This guy has a reasonable shot at a reduction then, though it won’t be all the way down to what he paid for the house.

Whether by AVM or by an actual real live appraiser, the value was essentially set about a year ago (by using sales comps up to six months older still) for their current assessment so even if the market dropped further while the whole revaluation process was completed the person in question likely won’t get credit for that extra drop.

He probably has a legitimate chance of splitting the difference (assessment vs. recent paid price) in this particular case as you just described it; much larger a concession than one would normally get.

Regardless, if enough people in that town appeal and get their assessments lowered then it will just lead to the mill/tax rate being set higher anyway as our politicians just can’t seem to help themselves when it comes to spending and tax increases.

Enough yakking by me…

Al in TN

That depends… it’s really hard for the tax man to say the property is worth more than it just sold for. If he has good comparable sales records for the area, then he might. But all the owner has to do is throw out a few pictures of the defects in his property proving it’s not what the comps are.

Like I said, I used to work for a county assessor for a while. I’ve seen it happen tons of times. Sometimes the tax man is right, sometimes the owner is right. If there are real sales numbers though it’s hard to argue the point.