It would be useful if you could show an example of where a house is worth more than what it is assessed at.

An assessor’s software program takes in a number of parameters and creates a regression against the market to determine what is realistic at that time. It is consistently calculating based upon known parameters. There is no emotion driving it like in realtor/seller pricing.

Assessed pricing is important because if a buyer pays more than what the county assesses them for they will feel psychologically that they have overpaid, especially in a down market. And if they pay more than assessed they can guarantee that the next year their tax assessment will go up.

I always look at both listing price and assessed prices. In an upward moving market (high demand, low supply) one would expect that houses will sell higher than assessed prices. In a declining market (low demand, high supply) one would expect that houses will sell lower than assessed prices.

On this point, I think we’re going to have to agree to disagree. I pay little to no attention to a property’s assessed value when I am trying to determine the value of a property; I just don’t see the consistency to grant them credibility with regards to market value.

I took a look at your references to the articles on DirtAroundGrounds Blog and I still don’t see what the issue is. Here is a direct quote from that blog:

Of the 274 remaining city sales, 141 sold for more than assessment, 3 sold for assessment exactly, and the remaining 130 sales were below assessment.

In general that means that 51% selling higher than assessed values, and 49% selling for exactly or lower than assessed values. He didn’t give the standard deviation for the error in assessed prices so it is hard to say how far above or below the assessed value is. But in general I have seen some markets with greedy assessors where 100% of the listings sell for WELL UNDER the assessed values. Which means more money in taxes, less price reality on assessment. I’ll take a 51%/49% split any day.

Assessed value is a market price set once a year based upon the market conditions and the data the assessor has available. They aren’t being adjusted for current events throughout the year.

For example it doesn’t take in to account dumb buyers, who just listen blithely to their agents who tell them that Charlottesville is recession-proof and over pay for a property. So when that property sells at an inflated price, people may get confused and say “WOW the market is really moving!”

It also doesn’t take into account builder/home owners who play games with their properties. I have seen a number of properties owned by builders who do a 2nd cycle construction improvement and assess it for $500K, when you know that all the work cost them probably less than $50K. It is pretty predictable too because you then see these houses listed on the market soon after the adjustment takes place with the $500K additional tacked to the price.

If a home owner chooses not to get building permits, or report improvements on their houses to get a lower assessment that cuts both ways. They get lower appraisals which equals lower taxes, but when they go to sell they can’t say, BUT WAIT I did over $200K in improvements that I haven’t told anybody yet nor did I get the permits to do so but SHHH! believe me it’s a good deal and its ok WINK WINK. And if a clueless Buyer buys into that and applies for a new building permit to do an improvement they are surprised when the inspector comes in and they get fined for all those HIDDEN improvements… oops!

You said:

(it’s in the owners’ best interest to keep their low assessments)

If they are doing that by not getting the permits, it is no different to me than when somebody under-reports their income to the IRS. It is still wrong and just because they did it and got away with it, I don’t want to inherit their problems when I buy their property.

I have fought assessments in the past where I thought my properties were over assessed and I had the data to back it up. That got my taxes lowered, and I didn’t have to hustle anybody when I was selling the property later.

Going inside a house does help to determine whether you like a home or whether the floor plan will work for your lifestyle, but that doesn’t make a major modification in assessment of value.

My philosophy is that unless somebody has a hidden pot of gold in their house, or a goose that lays golden eggs, no amount of HIDDEN improvements is going to nudge a valuation that much.

Rather than re-hash or identify specific properties here (it’s in the owners’ best interest to keep their low assessments) I’ll point you to my partner’s series on City assessments – Part 1 and Part 2.

All data needs to be analyzed, as do the respective sources.

If an assessor (or Realtor, for that matter) hasn’t been inside a house, they cannot accurately assess the true value of a property.

I show my clients my price ranges for my analyses, and I also show them my data and explain my methodology. Not all of them care, but that I freely show them is crucial.

I haven’t seen a property yet priced at 200% of fair market value, but I will certainly agree with you.

I’d also agree that I don’t want to fund others’ bad choices, but suffice it to say, if you’re paying taxes, you are (so am I)

You may trust it, but I have yet to see consistency amongst assessors’ numbers to a degree that I would trust them for anything. One key differentiator between my analysis and assessors’ – I’ve been in the homes I’m analyzing.

I would have to ask you to give me an example. I have plenty of examples of wacky realtor pricing on my blog.

In my analysis of the properties I have been looking at the assessors prices are more consistent. Most likely because they are using a software program to generate the price based upon the criteria they have.

I find realtor pricing to be erratic because often the realtor has to list the price to include things that shouldn’t be included in the fair market price: i.e. Need to market the property at 200% of fair market value because Seller got spend crazy and fully drew down on their home equity line, 5 credit cards, and now lost their job.

I moved on from purchasing real estate for myself to doing it as an alternative investment to the stock market. I am not a flipper and it is not my full time job, nor is it my primary source of income. I mainly did that because I had little confidence in the stock market and I needed to invest my money somewhere.

Right now what is driving me to look at properties is that I have some money that I didn’t lose in the stock market that I would like to invest in real estate. The biggest problem that I am finding in investing in Charlottesville is that most people bought at a market high back in 2005, 2006, and 2007. They can’t unload their properties until they are really being forced to, and at that time it is usually just way too late.

I refuse to fund other people’s bad choices (using their home equity line like a personal piggy bank for shopping and vacations). That’s why a lot of prices are just out of whack right now.

What is really crazy is that I am finding it to be more attractive to purchase properties in Northern Virginia than in Charlottesville. At least for those properties there is a better price justification to the local market. Here in Charlottesville reality has not penetrated yet. Many sellers are still clinging on and are hoping for that big fish to save them. They probably are feeling that it is better to go BUST BIG, than to take a loss and move on.

Problem with that is that there is no liquidity in this market. If you buy a property today, unless you get extremely lucky, you will not be able to sell it any time soon to cover your transaction costs. And people need to seriously consider that not for the purposes of flipping the property, but knowing what they are in for should the economics work against them.

I don’t consider myself an expert at this by any means. I just have learned a lot from others and my own personal mistakes. My belief is by sharing what has and has not worked for me, hopefully others will do the same, and we can all do better the next time round.

One way that I have done this is I have started a blog called “Worth More or Less?” http://worthmoreorless.blogspot.com

I highlight different properties that I have seen that I think are either a good or bad buy. Once again I don’t claim to know the magic right price, but I aim at backing up my price with facts and letting others judge whether they think my price is too low, just right, or too high.

Check it out and let me know what you think.