Wants and needs are difficult to separate. They are not as oil and watery as they should be. My wants and my needs are generally cobbled together in the same thought, the same action, the same breath. I believe I’m at a point were my needs are mostly taken care of, and it’s those darn wants that can get me down. Unfortunately, I’m well aware of my needs and my wants this morning, and I don’t want to talk about assessed value but I need to. This is unfortunate for all of us.
First up, a primer. Assessed value as it relates to property taxes should never be taken as a pure indicator of value. It shouldn’t be, but the temptation is there to make it matter. You can see it on the comments of this blog, that people think assessed value really, really matters. As in, “Gee Dave, this property sold for $1MM when it was only assessed at $700k, which means this buyer overpaid”. Unfortunately, it isn’t that easy, and so the first thing we must do when considering value is ignore completely and thoroughly the assessed value, at least in most cases.
If there is an egregious spread between list price and assessed value, we should pay attention to that. If a home is available to be purchased for $2MM and the assessed value is $3MM, this matters. This might mean the property is indeed a true value, or it might just mean that it is assessed too high, but either way it matters. If the buyer purchases said home and protests the assessed value with the municipality, that new owner may be in for at least a short term tax break. As another unfortunate development, we must hope that not everyone is able to reduce their assessed value, as once a large portion of a taxing district is successful in reducing their valuations the next logical step is for the municipality to increase their rate of taxation, their mil rate. When tax revenue goes down, don’t you dare think that a municipality will adjust their spending habits commensurate. Instead, they’ll seek to raise more tax revenue by simply manipulating their mil rate, which means your property may be worth less but your taxes aren’t going to go down all that much. Also, tax and spend is a disease.
While a low sales price relative to a high assessed value may prove some metric of value, the biggest concern for buyers of all homes everywhere, but especially lakefront homes on Geneva, is to watch that assessed value if it is lower than your purchase price. I sold a home on Folly Lane a few months ago. That home, at $1.65MM, will likely go down as the best value of the year on Geneva Lake. That home had an assessed value near $2.8MM when it sold for $1.65MM. The new owner successfully petitioned the municipality, and the tax assessment was reduced. This is a victory, but this is a case where a tax assessment works in the favor of the new owner.
On the flip side of that heavy coin, a property on Geneva Lake with a list in the mid $3MM range is pending sale right now. The taxes on that home are reasonable, under $40k based on an assessed value in the $1.8MM range. The home resides in a municipality that consumes taxes the way I might consume freshly fried donuts that have been dredged in cinnamon and sugar, and my appetite is anything but satiable. The simple math behind this purchase is that the property tax bill on this home is fixing to nearly double, and that’s why assessed value in certain cases matters a whole bunch. It isn’t indicative of current value, but it is capable of causing buyers to pause if they pay attention to this aspect of a purchase.
Lastly, assessed value is especially interesting as it relates to distressed sales. Buyers should be aware that if purchasing a short sale, an REO, or a property at sheriff’s sale, they will not have an even argument when the time comes to protest the current assessment. I learned this the hard way a few years ago when I purchased an REO property on a couple acres. I bought the home for $177k, or so, though the assessed value was close to $350k. I figured it would be easy to adjust my tax assessment based on my new purchase price. I had, after all, purchased the property in an arms’ length transaction, via the MLS. I was turned down for my request at a fresh assessment that reflected my recent purchase price. The assessment was reduced, just not to the level that I purchased at. Assessor’s do not view distressed sales as pure market sales, so they are generally reticent to recognize the price paid as a true market price. Even though it is.
Thus ends our discussion of assessed value. If your agent is doing their job, you shouldn’t have to worry too much about assessed values. The best way to confirm that your agent is doing their job is to make me that agent.