Asking prices vs. assessments: WTF?

March 14, 2009 2:04 PM

Thinking about contemplating considering looking into buying a house in the next year, and when I research properties, asking prices vs. assessed values are all screwy. Why?

I'm routinely seeing things like this:
- asking price $135,000
- 2006 assessed value: $35,000
- 2007 assessed value: $53,000
- 2008 assessed value: $53,000
- last sale: November of 2008, sale price $50,000.

Values are pulled from county PVA website.

The house above looks quite nice, but has no central heat and is on a small lot in a historically rough area.

A similar example is for sale around the corner from me: they want $330,000, but the assessed value is $240k and it was $180k or less in 2006, $152K in 2002. Last sale on that one was too long ago to matter.

I'm seeing these all over town, and this area is not generally described as hard-hit by the whole real estate bubble. Are assessments generally way out of whack with sale prices like this, or is there some serious denial going on? Note that the first house is in aneighborhood where people might look to buy rental property, and the second is in a very, very good area (makes me jumpy, it does). The neighborhoods where I'm seeing this typically don't have any big planned changes or developments that should run prices up. There are a couple of areas that don't seem so extremely out of line, but are still off enough to notice.

posted by dilettante to home & garden (15 comments total)

1. You don't specify your location. In my state, the assessed value is always one-half of what is approximate market value.
2. Right now, everything involving real estate is screwy. "WTF" is a constant mantra.
3. Asking price is usually a dream price, and it should never be taken seriously. If that house indeed sold just last November for 58K and he's now asking 135K, then he is out of his mind.
posted by yclipse at 2:17 PM on March 14

Sometimes assessed values come from last sale, but as your example notes, the last sale is way out of line with asking price. Asking price is a finnicky thing, and the owners are often in denial about it.

Perhaps you should make an offer you think is better, and wait for them to tell you you don't understand how great this house is compared to the rest on the block.
posted by pwnguin at 2:18 PM on March 14

Assessed value has nothing to do with market value. Apples v. oranges. Assessed value is set by the tax authorities. It forms the basis upon which property tax is calculated (assessed value x tax rate = property tax).

Essentially, market value is the amount that a buyer and seller agree that a house is worth. It is driven primarily by comperable sales in the area. To figure this out, you need to track the market and see exactly what is selling and for how much. Look at the number of bedrooms, bathrooms, condition of the home, square footage, amount of land the house sits on and so forth. Compare this to the sale prices of other homes in the area.
posted by inkyr2 at 2:32 PM on March 14

The housing bubble which thankfully just ended was the only time in my 32 years that I recall anybody getting above asking on a property. The asking price was always the owners "high-ball" offer, it was expected that you would go down below it.

A lot of sellers are in denial right now. Here's a great article about homeowners being in denial:

Likewise, an unscientific study released last week by real-estate Web site Zillow.com found that half of homeowners polled think their home's price has increased or stayed the same in the past year.
[...]
In fact, the median sales price of an existing home dropped 9 percent to $191,600 in September from a year ago, according to the National Association of Realtors.

posted by jedrek at 2:33 PM on March 14

Could the assessed values you're looking at include the house, but not the land it sits on? Here in CA, my plot of land is worth much more than my tiny house.
posted by changeling at 2:43 PM on March 14

Okay. from the Fayette PVA website:
Real property is defined as the interest, benefit and rights in the ownership of land and any improvement on the land. Real property must be assessed at 100% fair market value unless specifically exempted by the Kentucky Constitution. Fair Market Value is the price a property would bring in an open market with a willing buyer and a willing seller, with neither party under duress, given a reasonable amount of time on the market. KRS 132.690 requires each real property parcel be assessed annually and physically inspected no less than once every four years.
posted by dilettante at 2:51 PM on March 14

Houses are normally considered as improvements on the land, btw.
posted by dilettante at 3:05 PM on March 14

The assessed value is what the local taxing body uses to assess taxes. It is never that closely tied to the FMV because that would cause no end of headaches for the local assessor when people would want their properties taxes at the rate they purchased it at, leaving tons of room for fraud; having one selling price listed on the property transfer while having a seperate agreement with additional money changing hands, selling within families where FMV is ignored and so on.

Different areas have different "rule of thumb" multipliers, but not always useful to figure out how much you should pay.

You could start tracking what the asking price is and then what the house actually sells for in the areas you are interested in. When you put in an initial bid, be aware that the price you will pay will be somewhere in the middle of the difference between the asking price and the initial bid.
posted by readery at 3:05 PM on March 14

I live in an area where the assessed value has to do with taxes as discussed above.

I've found looking at the asking price per sq ft v. average sales price per sq ft in the area is much more helpful than looking at the assessment. YMMV.
posted by cestmoi15 at 3:16 PM on March 14

Tax assessments generally lag the market by a certain amount, especially because homeowners are always more optimistic about what their house is worth than is justified. But note that the assessments you list are all in keeping with the last sale of the house. Basically, the homeowner has either made significant improvements to the property since the last assessment, which is entirely possible, or he's crazy, which is also possible.

If I understand your example correctly, I'm betting that the house you're seeing listed for $135k that sold for $50k in November isn't going to sell at that price. Assuming nothing has been done to the property to justify a 150% increase in value in less than a year, he's going to be lucky to get $60k.

Just because we're in a bear market doesn't mean homeowners are willing to take a bath or stop overvaluing their properties.

Also, readery is right that asking prices rarely reflect selling prices. The haggling process that goes into closing can routinely knock 10% off the asking price. A homeowner who holds out for their asking price isn't terribly likely to get a lot of action unless it's priced very well.
posted by valkyryn at 3:25 PM on March 14

i live in aus. it seems almost opposite. if someone gives an asking price, then that is typically what the house will sell for. but more common is to give a bracket, "230-250k". we've just probably started coming out of a 5 year period where it was rare to have a house go for less than the bracket - the price was typically above the top of the bracket. it has been a sellers market, until last year.
are you serious that a house with an asking price of 135k might sell for 60k? that is more than ridiculous.
posted by edtut at 4:20 PM on March 14

About the asking price vs. last sale price. Do you know the details of the last sale? It could have been a sale to a family member or friend or maybe even a foreclosure.
posted by odragul at 5:51 PM on March 14

I think there are a lot of owners out there who don't really understand what it means to say that the "housing bubble has burst", and who think that prices will soon return to what they were two years ago.
posted by Chocolate Pickle at 5:58 PM on March 14

These are good questions to ask a real estate broker. Have you consulted with one? He/she can clear up the discrepancies and explain the local market better than any of us can. And it's free of charge.
posted by birdwatcher at 5:32 AM on March 15

Some areas have a limitation on the amount your taxes can increase per year once you declare homestead exemption. I bought land in 2002 and the taxable value was 20K. After I bought my home, the taxable value was X. Now I have claimed homestead, and the taxable value can only be raised no greater than 10 percent per year, even though the value of my home has increased by Y.

Example: My home may have increased in value from $162K in 2003 to $251K in 2008, but the tax limitation law means I only have to pay the tax on $212K worth of value. Would I sell my house for $212K when it's appraised at $251K? Hell no. Would a foreclosure on my home take a payment that covered my remaining balance of, say, $195K? Yeah, probably. See? Value can be relative, not fixed, especially in this economy...

Does this help you?
posted by Unicorn on the cob at 10:24 AM on March 15