Question: I have a question about how real estate is being priced in the Puget Sound area. I have talked to at least a dozen longtime real estate agents and asked them how today’s asking prices compare to assessed values. All told me the same thing: The houses that are actually selling today are priced right around assessed value or even slightly lower. Yet, I’ve seen houses priced $45,000 or more above assessed value, nice houses to be sure, with very few qualified buyers coming to look at these properties. Should sellers and their agents use the assessed value as a guide to determining the asking price?
Answer: This is a fairly common question. Many people think that that there is a predictable relationship between the tax assessed value of a property and its expected selling price.
In reality, it doesn’t work that way. For example, I logged into the Multiple Listing Service computer system used by real estate agents and grabbed the statistics for a few random homes that sold in the north Everett area within the last six months. Here are the statistics on a few of those sold homes:
A home sold in March for $279,950, which was the full asking price. That indicates that the home was properly priced and the fact that it sold only one week after it was put on the market is further proof that the sellers priced it below the price of the competition in the neighborhood. The tax assessed value of that house was $241,000. So the house sold for 16 percent more than its assessed value and it sold very quickly, which indicates it was a good deal.
Another home sold in April for $194,000. It was originally listed for sale with an asking price of $229,000, but the asking price had dropped to $199,000 by the time it finally sold after it had been on the market for a month. The tax assessed value of the home is $199,100. So that house sold for slightly less than its assessed value.
Another home sold in January for $199,950. It was originally listed for sale last October with an asking price of $249,950 but the asking price had dropped to $199,950 by the time it sold in January after almost four months on the market. The tax assessed value of that house is $239,300. So that house sold for 16 percent below its assessed value.
Notice a pattern? There isn’t one. I picked those three houses from a random sampling of 19 closed home sales in north Everett early this year. I spent only a few minutes looking at the listing service statistics to find these examples. I could have found far wider variances if I really wanted to put some time into it, but these three examples make my point.
There is simply no predictable relationship between a home’s tax assessed value and its expected selling price. That’s because tax assessments are generated by a computer program, not by an actual physical appraisal of each individual house in the county.
This can lead to some strange valuations. You can have two very similar houses in the same neighborhood have very different tax assessed values even though they would probably sell for about the same price if they were put on the market.
That’s because the computer program is using basic information like square footage, style of home, number of bedrooms and bathrooms to calculate the value, and it may not take into consideration things such as a view or location on a busy street.
Online home valuation tools like Zillow.com have the same problem.
There is no way for a computer program to factor in subjective factors such as a view.
I’ll use my own home as an example. I live in an area where views are a big factor in determining value, which is something that can’t be easily measured by a computer program.
We just had our home appraised for a refinance and the value came in at $680,000. Zillow says it’s worth $609,000; the tax assessed value is $646,000 and I think we could realistically expect to get between $750,000 to $800,000 if we put it on the market today.
Why such a wide range of values? Because the way an appraiser looks at a home is different than the way a real estate agent or homebuyer looks at a home. A buyer falls in love with the floor plan and the wonderful views of the city, lake and mountains. An appraiser just looks at sales data for homes of comparable style and size that have sold recently in your neighborhood.
While I think a buyer would pay $750,000 or more for my house, the appraiser could only go by the price that buyers have already paid for other houses that have recently sold in my neighborhood.
None of those houses has exactly the same kind of view that my house has, and that could make a difference of $100,000 or more in the selling price. But that’s a very subjective judgment, the kind that a real estate agent and buyer can make, but an appraiser cannot.
He or she can only crunch the numbers and in my case the comparable sales only justified a value of $680,000 in the appraiser’s opinion.
The bottom line is that a house is only worth as much as somebody else is willing to pay for it. Until I put my house on the market and get an offer from a qualified buyer, I can’t really know for sure how much my house is truly worth.
Computer programs, formulas based on the tax assessed value and even a formal appraisal are all merely guesses at the expected value of a home. The most accurate estimate of value would probably come from a real estate agent who has recently sold homes in the area and has a good feel for what buyers might be willing to pay for a certain home.
But even those agents are just making an educated guess. It’s the homebuyer who ultimately sets the actual value of a home when they make a bonafide purchase offer.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box, Everett, WA 98206, or e-mail him at economy@heraldnet.com.
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