Tax value vs. market value

jenswrensMay 21, 2008

It has always been my understanding that the tax value of your home is NOT synonymous with the market value, and is generally less than the market value. At least this is the way it was when I bought both of my homes. To get a true market value, you need an actual appraisal, right?

I ask b/c one listing agent that I met with told me that she pulled our tax records, and "this is what you paid 4 years ago, but unfortunately your house has decreased in market value" and pointed to the tax-assessed value. I happen to know that our tax assessment has increased since we bought the house. Am I crazy to think that tax assessment and market value are one and the same? Have things really changed that much in the market?

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Surely it depends on your municipality. I watch the market in my area. For several years tax assessments were 10% to 30% below market value in my county. Evidently, the municipalities wanted to catch up. So the assessments were substantially increased a couple of years ago; the market softened at about the same time. Now homes usually sell well below their assessed values. Both the market and the assessment changed here. It does seem crazy.

But why is the realtor using tax assessments to justify your home's value? Assessor's data may be wrong and the assessor has not toured your home as the realtor has. She should pull comparable sold properties to justify the price and show you the current listings so you'll know if the market is bloated locally.

    Bookmark   May 21, 2008 at 9:23AM
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In *theory* they should be the same, unless local law specified otherwise (some places seem to say the assessment should be x% of actual market value). However, assessment is imperfect in part because it's based on a limited number of transactions and in part because there's bias (people fight high assessments but not low ones). Finally, assessments trail the market, since the assessment is typically made a year (or more) before it's imposed.

    Bookmark   May 21, 2008 at 9:56AM
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It's always been my experience that tax values lagged behind fair market value. We were just reassessed for 2008 and even in a bad housing market, that tax value is still lagging behind the fair market value by about 15%. So the gap has closed in my area but there is still a gap. I'm sure it varies market to market but assessed value and market value are not neccessarily the same. Your realtor should not be basing your home's value on your tax assessment.

    Bookmark   May 21, 2008 at 10:17AM
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The town I live in reassess yearly. Our tax assessment is always within 5% of the market value of our home. *sigh*

    Bookmark   May 21, 2008 at 11:23AM
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Nice try, Realtor! Apples and oranges unless she was finding proof that assessments had dropped -- but you say otherwise.

I'm in Lake County, IL. (Previously lived in Cook County.) In both counties the real estate tax assessment is far lower than the assessor's 'projected' market value -- which is itself lower than the 'real' market value (what a buyer would likely pay).

Here the assessment is 33.33% of the projected market value. The projected market value is about 70% of the real market value. The assessed value is 23% of real market value.

I can't imagine what your realtor was comparing. The taxes you pay are not solely determined by your assessment; they depend on the tax rates set by your taxing bodies, as applied TO the assessment.

    Bookmark   May 21, 2008 at 11:30AM
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Here in Texas, there's a percentage limit on how much they can raise your property assessment in any given year. So when house prices were rising so rapidly, the tax assessments couldn't keep up.

Just as an aside, in my neighborhood in southwest Houston, house prices are still rising. No less than three houses in my immediate subdivision had "sold" signs up within two weeks of the "for sale" sign being posted. And the prices listed on the internet for these houses were high, historically speaking.

    Bookmark   May 21, 2008 at 12:22PM
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In my neighborhood in 2005-2006 (early) the houses were selling for an average of 75k above their tax assessed value. I kept a spreadsheet for about two years and put every transaction in that happened in my school district. The house I purchased in 2006 was the only one in the school district to go for less than it's tax assessed value (becuase it was TRASHED).

Now I'm seeing both the tax assessments go way up (ours has gone up 15/30k per year!) and the values come down, so I'd probably have to throw the old spreadsheet out and start all over again tracking values. If I wanted to buy again in the neighborhood, and I don't ;)

    Bookmark   May 21, 2008 at 5:57PM
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The tax assessments are lower than market value. The newest houses have the highest assessments. So, all things being equal between two houses (well, as equal as it can ever get!), the tax assessment will be considerably lower on the older home. However, many of those older homes actually sell for more than the newer ones. I have noticed that the selling price on some homes is very close to the tax assessed value; but as one poster observed, there is a lag in the tax value.

    Bookmark   May 21, 2008 at 11:42PM
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If the tax assessor gets close to actual market value the challenges will start up.

Even in places with '100% of fair market value' they know to stay just enough below to avoid clogging the system with appeals.

This makes tax valuations a 'lagging' indicator.
They are always behind since they are normally required to use completed sales as the basis.

    Bookmark   May 24, 2008 at 10:30AM
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We appealed ours this year, and have every year since we bought the house except for once. Usually by now if I look on the website I'll see the adjusted value, but I suspect with the market like it is combined with the heinously large adjustments upward our county has done to us, they may be a weeeeeee big backlogged.

Knowing our county, my appeal and probably just about everyone else's has been filed in the "circular file". :(

    Bookmark   May 25, 2008 at 3:05PM
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For the first time, in my lifetime, I'm seeing town assessments higher than selling appraisals. The town assessments are supposed to be 70% of the selling market value.

We are holding our breath to see what our taxes will be July 1rst.
We were re-evaluated last year (physical assessment every 10 years in my state), but the taxes go up every year.

I will really have a problem if the town assessment will be higher than the possible sales appraisal. I refuse to be taxed on 110% of real property value. It's the law in my state that you are taxed on 70% of the market value, not 110%.

I'm sure there will be lots of screaming. I'm wondering how LEGALLY that can happen. I guess everything has skyrocketed & the towns need money, especially for schools, busing (gasoline) etc.
It's just that the paychecks have not gone up a penny, while everything else is unreal.

It's just weird to see the properties go down in value, while the town assessment is shooting up. I don't have a problem paying taxes on 110% value IF I can sell the house for that much. Otherwise, it's war!

    Bookmark   May 28, 2008 at 9:19AM
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Here in California, the assessed value is almost always the sale price of the house, which is market value by definition. Occasionally, assessors will determine that the sale was not an arms-length transaction and make some kind of adjustment, but the vast majority of homes are assessed at their sale price.

Of course, since 1978 we also have this crazy system called Proposition 13, whereby the the assessed value of your house is essentially fixed on the day you buy it. So we have many long-time homeowners who are paying taxes based on the 1978 value of their house.

Here is a link that might be useful: Proposition 13

    Bookmark   June 5, 2008 at 10:05AM
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