How Do Assessed Value and Fair Market Value Differ
Over the last twenty five years while working as a Massachusetts Realtor, one of the misconceptions that I routinely come across is people who like to draw a definitive correlation between a homes assessed value and it’s fair market value. Lets set the record straight folks – there is very little correlation in most circumstances between the two figures.
In fact some of the biggest perpetrators who misuse this information are Realtors themselves! Of course a Realtor who is going to discuss a homes fair market value in relation to it’s assessed value is only going to do so if it sheds a positive light on the property they are marketing.
Unfortunately the myth of assessed Real Estate values having a strong correlation to their present market value persists because of this.
Often times the general public gets confused about this because a number of Realtors fail to educate their clients that there is a big difference between the two figures. Looking at assessed values is about as good as using Zillow.com to figure out what a home is worth! If you have done any research on Zillow then you know how inaccurate their home values can be.
When the assessed value the town places on a home is higher than what a property is on the market for you will often see a Realtors advertisements that say something like this “Come see this bargain home that is priced $100,000 less than the assessed value”. What this immediately tells me is the Realtor either is not educated on property valuation or they believe there will be someone ignorant enough to think the home is the bargain of the century. Someone that knows better will be realizing the property has been over assessed by the town and the seller has been paying too much taxes!
The opposite of this scenario is home buyers who see a home listed higher than the assessed value and if they have not been informed properly by their buyers agent, will use this data point as part of their negotiations when submitting an offer. If more Realtors did a better job of teaching the public about the difference between market value and assessed value there would be far less confusion. In most cases assessed values are a worthless piece of data when figuring Real Estate values.
Here in Massachusetts most people realize Real Estate values have dropped in most area by a large percentage over the last five years. As values have dropped there were some folks that thought their taxes would come down along with them. When people misconstrue that assessed values and fair market values are the same they will generally arrive at this conclusion.
In theory this should be the case but assessed values are nothing more than a yard stick for a municipality to collect an appropriate amount of taxes to sufficiently cover the state and local appropriations chargeable to the city or town.
So what this means is the town is going to need to get “X” amount of money every year to run the show. If market values of homes are dropping assessments will eventually catch up to them but in the meantime towns will increase the tax rate as necessary to ensure they still get the funds necessary to cover their budget.
You also need to remember that the assessed value of a home often lags the market because the valuations are not re-calculated until the beginning of the next calender year. So if the market value of local properties are declining, it is not unusual to see the assessed value being higher. Likewise if values are heading up it could be just the opposite.
While practicing Real Estate I have seen some of the strangest things when it comes to assessed home values. Believe it or not I have seen some homes that are as much as a couple hundred thousand over or under assessed in comparison to their sales price.
I have seen two homes built by the same builder side by side where home “A” was larger and had a bigger lot than home “B” yet home “B” was charged more in taxes due to a higher assessed value. This should never happen but it does!
Home that have re-sold more recently will usually have a more accurate correlation of their market value vs assessed value than a home that has not sold in a long time. For example, a home that sold a couple years ago usually will have a stronger correlation than a home sold fifteen years ago.
Another example of how assessments can become slightly skewed is the home owner who feels they are being over assessed by the town, files a challenge, and wins an abatement. Their assessed value is now changed to the lower value. Does every other home owner who has a similar property get a notice in the mail saying their properties assessed value will also be coming down courtesy of the research done by Mr. Smith who lives down the street? If life were only that grand! This is the perfect example of the squeaky wheel getting the grease.
So what should you do if you think your assessed value is out of line with other similar homes in your neighborhood or town?
You could head to your local assessors office and file for a tax abatement! All the information necessary regarding the application process and the deadlines for filing should be made available to you at town hall.
Applications for tax abatement’s are due on or before the due date for payment of the first actual bill. The towns assessor has up to three months in Massachusetts to act upon an abatement request.
If you are denied your abatement request and do not feel that the assessor made the proper ruling you have the right to appeal to the State Appellate Tax Board.
In summary an assessed value is the valuation placed on a property by a public tax assessor for purposes of taxation. Fair Market Value on the other hand is the agreed upon price between a willing and informed buyer and seller under usual and ordinary circumstances. It is the highest price which the property will bring when exposed for sale on the open market to a buyer who is purchasing with full knowledge of the properties highest and best use.
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About the author: The above Real Estate information on Real Estate assessed value vs fair market value was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at firstname.lastname@example.org or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.
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I service Real Estate sales in the following Metrowest MA towns: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.