What is the relationship between the city's/county's tax assessment value and the sale price of a home?

Asked by Dee Brown, Washington, DC Mon Mar 4, 2013

Why are tax assessments generally lower than the sale price? For instance, a home will be listed at 200k and have a tax assessment of 150K.

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Maureen Dwyer’s answer
Maureen Dwyer, Agent, Ashburn, VA
Fri Mar 8, 2013
If you think about the purposes of each you can understand why they're different. If you are being assessed or taxed on your property's value, is it in your best interest to report to your county taxation office that nearby property is being listed and sold for above what the county feels is the value? That's why tax offices of localities have a system of what is called re-assessment to determine current market conditions but they are always lagging, as you would expect. I have known people who recently purchase go to the assessment office with proof that the assessment is too high to have it reduced. You never hear of the opposite.
The market is real and dynamic, a negotiation between what the buyer and the seller think a property is worth. Either side can reject the offer if it's not satisfactory. The sale price of a home reflects the current market and the assessors will get around to it eventually. Because there can be error and because government in terms of housing is not trying to be ruthless, a locality might have a percentage of value used for assessment. You have to research each locality to know, it's usually not clearly stated.
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Miekeba Jones, Agent, Silver Spring, MD
Tue Mar 5, 2013
Hi dbrownofdc. There is not a relationship. Sales prices are determined by current market prices. A good tool Realtors use is a comparative market analysis and will be provided to the buyer before determining a price to offer.
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Jason Skipwo…, Agent, Washington, DC
Mon Mar 4, 2013
They are typically not related. In DC tax assessment valuation is supposed to happen annually. However, in DC homeowners can also receive the Homestead Tax Deduction on the tax assessed value of their primary residence. This decreases the tax assessed value by $69,100. So that is going to create variance as well. Tax assessment is not a good way to determine valuation of a property in DC.
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Kelly Putz, Agent, Fairfax, VA
Mon Mar 4, 2013
The relationship is that the tax assessment value is based on what the market WAS doing at the time of the assessment. It takes the city and the county a while, sometimes years, to catch up to what the market is doing. It's also to the gov't's benefit to reassess when values go up, but not so much when they go down. In fact, in some locations you can challenge your taxes. I have a client in MD who purchased a condo in a short sale last year for $40,000, but it was being assessed at $180,000, what it previously sold for four years earlier. My client challenged, providing recent market values, and got their assessment reduced to $50,000 dramatically reducing their property tax payment.

The sale price of a home is based on what the market is doing right now. That's why some houses, particularly in the DC area, are now selling for higher than list price, because inventory is low and demand is high in some areas.
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Sara Rubida, Agent, Arlington, VA
Mon Mar 4, 2013
In our area's real estate market, the tax assessment and the market value aren't related. Real estate valuations are "real time"--the property is worth whatever it is worth at this particular time. Local governments assess Virginia properties annually, and I believe it may be every three years in Maryland. For example, in Arlington the tax assessor started the 2013 cycle in probably late summer of 2012, with the new assessed values to appear in maybe March or so of 2013. So in summer of 2012, the assessor reviewed neighborhood sales activity from late 2011 into mid 2012. Well, 2011-2012 was a s-l-o-w period in the market, whereas 2013 is starting off as a strong seller's market, a hot market, with buyer activity and prices on the rise and inventory 'way low (remember about supply and demand from your Econ classes). So at this point market values will exceed assessed values. A few years ago in the downturn, the assessed values sometimes exceeded the market value. All that being said, at least look at the assessment compared to the asking price
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