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Some Realtors are convinced that market values for homes can be somehow predicted from government tax assessments, not to be confused with professional appraisals. No doubt some of the confusion stems from the fact that assessment and appraisal both begin with the letter "A." Indeed, the stated goal of most local tax assessors is to assess in relation to market value. Of course, an average relationship between tax assessments and contract prices of recently sold homes can be calculated easily. But the idea that a government employee
sitting in an office with some records and a computer can predict the market
value of a specific home is ludicrous. If
this were true, the entire professional appraisal industry would be out of
business. If you must, call your
local tax assessment office and ask what contract price should be expected for
your seller’s home. Also ask if
the assessor will use the tax assessment to set the price for his own home when
he sells. Putting stock in tax
assessments will be dangerous: You will be either setting too high an initial
price or worse yet, you and your seller will be ready to accept too low an
offer. Use of tax assessments is
easy, but it is a violation of your fiduciary duty to your seller. Tax assessments have only a very general relationship to a
home's market value: It is so general as to be valueless.
Those who tell you there is a direct relationship are relying on a very
few bits of data, or they are repeating "what everybody knows."
Statistics prove them wrong, both over a wide area as well as in a
limited area. To predict a contract
price from a tax assessment, one needs to guess
the exact percentage factor to multiply by the tax assessment to obtain the
predicted contract price, with absolutely no basis for making the guess.
It has been shown that this percentage factor varies so widely (as much
as 50% to 200%) that it is un-guessable. Of course, there is some average
relationship between tax assessments and market values that can be calculated. But use of this figure to determine the market value of a specific
property should be enough to make even the tax assessor giggle.
He's probably never seen the home. But
amazingly, there are highly touted calculation systems currently marketed that
rely on tax assessments, even one (unbelievable but true) with a US Patent!
Although the math is indeed logical, the fact that the basic tax
assessments are flawed, makes the entire method a sad farce.
A focus on the calculation method and on the approval of others, obscures
the basic defect to all but a very few incisive individuals who seek statistical
verification of the underlying data, the tax assessments themselves. While it is deceptively easy to read a
home's tax assessment from government information, it is deceptively inaccurate.
There is no substitute for a properly prepared market value analysis or
an appraisal. Mortgage lenders do
not rely on tax assessments, and neither should you. But just dream for a second... how easy it would be if it
were true, for agents as well as for the buyers and sellers who would be freed
of messy price negotiations. But
sadly, tax assessments are useful only to determine how much real estate tax one
will pay, nothing more. Ideas that
sound good are not always right. Be
armed with the facts! |
