Before Christmas, I was in the process of writing an article pointing out that most people's homes are now worth more than they think. Over the past year the market has been very hot and home values have gone up, particularly in the entry level market. I didn't get the article sent out and now it is moot...
The tax assessments are out and they have thrown a wrench in that article! The assessments have only just come out and they are all over the map....resulting in some property owners thinking now that their homes are worth more than they could sell for in today's market. I have had some clients calling for the past 2 days as they cannot believe their homes would sell at the assessed prices...and they may be correct. So far we are seeing some assessments coming in too low (as usual) but also many are too high. By quite a bit! The overvaluation seems particularly pronounced in the higher priced areas. Having said that, 2 of the calls I have received on this issue have been with respect to more entry level houses. This causes a problem as owners almost always believe that their home's value, should they sell it, will be higher than their assessed value...but that is not always the case.
When markets have gone up in the past, we have also seen this problem. It seems most pronounced when looking at the higher end market but not always. The higher a home's price, it seems the more likely it is that the assessor will overvalue it in a hot market. Our current very hot market has been fueled by entry level homes being bid up to crazy prices. This has also happened in mid range properties but bidding wars occur less often on higher priced properties. So the assessors can end up way off in their valuations. Even if they only show a small percentage over estimation on price increase on a multimillion dollar property, this can lead to a significant dollar amount over the actual potential market value.
Why does this occur?
The tax assessors are NOT appraisers. Nor are they realtors...and they work with a lot less information.
Tax assessors do not set foot in the home they are valuing nor in the homes that are sold in the area. The tax assessor's valuation is a paper/online exercise for the most part.
Appraisers look at an individual home and determine it's value based on the comparables. They usually go inside the home they are valuing. Often they have not been inside the comparable homes but at least they have the information about the particular home they are valuing. Because appraisers haven't seen the comparable sales in the area, they often call us (realtors) for advice on how a comparable sold home "compared" to the property that they are appraising. This gives them a bit more accurate information to use.
Realtors see the house they are valuing AND most of the comparables...and they are in the market watching and experiencing what people are doing in terms of bidding wars and pushing prices up. So their valuations should be most accurate for most homes.
In fairness to tax assessors they are not trying to determine a precise market value. They are looking at a snapshot and for an approximate value as of July 1 the PRIOR YEAR. The market can change a lot in 6 months. In addition, they have hundreds of thousands of homes to value. To review each home would take far too much time. Instead, they use averages, look at what the market is doing overall, look at what is happening in the area where the homes they are assessing are, etc. They do not know that your home is renovated and the home that sold beside you was not...or vice versa. They are not determining the market value of your home. They only provide an approximate value which is then used to determine the property tax you will pay for that year. Assessed values and market values are completely different...apples and mangoes.
So what does this mean for this year in particular? If you are in the under $5 million price point, you are likely ok-you could probably sell your home for more than the assessed value....but not with as much of a gap as you would have expected in the past. I have not looked at the assessed values extensively yet but I have looked at some-including my own. I own a house which is worth a lot less than $5 million. Despite being at a lower price point, my assessment seems high. Definitely not a guarantee of what I could sell my house for today.
If you are wondering what the value of your home is, in today's market, the best way to find that out is to ignore your assessment! In most cases, even an appraiser cannot give the best valuation. The best way to find out your current market value is through a market evaluation by a good realtor. We don't get paid for doing home evaluations, so my saying that doesn't help me or any other realtor earn a living! Realtors will usually have the most information from which to give you an accurate value. We are able to look at your home, we will usually have looked at many of the comparable homes and we know what is happening in terms of multiple offers and the likelihood of a bidding war pushing your price up.