Why the tax assessment value is always lower than typical listing price? Should we base our offer price based on tax assessment value?

Asked by Ran, Ardenwood, Fremont, CA Wed May 19, 2010

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Don Tepper, Agent, Burke, VA
Thu May 20, 2010
The assessed value isn't always lower.

As Patrick (and others) point out, assessments are broad averages, based on historical sales. When prices are rising, then looking at last year's sold prices means that the assessments generally will be lower than today's typical listing price.

On the other hand, when prices are falling, then looking at last year's sold prices means that the assessments generally will be higher than today's typical listing price. Where I live, assessments are done annually. So the 2010 assessments are based on 2009 activity. So the data are already a year out of date. There are plenty of jurisdictions where assessments are only done once every 2 or 3 years. So those are even less reliable.

Further, as almost everyone here points out, never, ever, base your offer on the tax assessment. The tax assessment is, at best, a broad average. It's not specific to any one home. The tax assessor didn't come out a few months ago and inspect the home. And where I live--and I suspect similar policies exist in many other areas--the county considers an assessment "accurate" if it's within nearly 10% of the actual value of a property. So, the county where I live would consider an assessment of $400,000 "accurate" if the true value of the property were between about $365,000 and $435,000. That's a mighty big range. And I can tell you that not all assessments are "accurate" even within those guidelines. So, you definitely wouldn't want to make an offer of $400,000 on a home assessed at $400,000 when its true value is only $365,000.

So: Have your Realtor run a CMA on the property you're interested in. Pay no more than the CMA suggests. Probably offer less. Your Realtor can provide guidance on strategies.

Hope that helps.
2 votes
Patrick Thies, Agent, Anytown, IL
Wed May 19, 2010
Tax assessment value is not the market value of a home. It's a value used for tax purposes. It usually is lower then the market value which is a good thing when figuring taxes. The tax assessed value can also be higher then the market value as is the case for the past few years.

Tax assessed value is usually an average of several years of previous sales. The years where properties were selling higher provide a higher tax assessment value. The current market value can be lower then the assessed value in a declining market which is what we have seen lately.

You should base your offer on what similar homes in a similar condition, size and location are currently selling for.
2 votes
The Medford…, Agent, Fremont, CA
Wed May 19, 2010
Ran:

Ignore the assessed price – it has nothing to do with current reality. It was a previous assessment by the country and has absolutely NOTHING to do with current prices.

Have your REALTOR® run the local comps, then make an offer based on market value, nothing more, nothing less.
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1 vote
Kamal Randha…, Agent, El Sobrante, CA
Thu May 20, 2010
Hello Ran,

You should use all the data available to you to make a good decision about putting in a bid. Most homes are selling at or above asking price right now so you should make an offer you feel comfortable with.

Kamal Randhawa
Broker
510-932-1066
0 votes
Steven Ornel…, Agent, Fremont, CA
Thu May 20, 2010
Hi Ran,

Bernard brings up a great example of why doing a little more homework can pay off.

The "1.25% of assessed value" or "$1.25 per $1,000" are general and commonly used estimates. Property tax bills actually consist of 3 separate levy categories:

1) General Tax Levy
Controlled by Proposition 13, this tax is limited to a maximum of 1% of the assessed value of your property (the "land" and "improvements"). As it presently stands, this can be no more than 2% greater than the previous year's tax.

2) Voter Approved Indebtedness
Includes taxes levied to repay bonds approved by the voters. This amount varies from county to county depending upon the number of local bond issues approved. Under current law, local general obligation bonds require a 2/3rds majority vote to pass.

3) Direct/Special Assessments
Now controlled by Proposition 218, these assessments require a majority vote of the property owners, with each owner voting the dollar amount of their assessment. Fees charged for the property-related services of sewer, water, and refuse collection can be imposed without a vote, but may not be greater than the cost of providing the service.

So, for any purchase just take your assumed purchase price and multiplying by 1%. Next, go to the Alameda County Assessor's website here:
https://www.acgov.org/ptax_pub_app/RealSearchInit.do?showSea… and type in the address of the property to see any taxes falling under items 2 & 3. This will provide you with the most accurate figure (once any reassessment that I commented on below works its way out).

Best, Steve
0 votes
Bernard Gibb…, Agent, Danville, CA
Thu May 20, 2010
Hi Ran:

Just to add one thing to Carl's comments. While it is true for most of San Ramon that your property taxes will be $1.25 per $1,000, it will be rather more if you buy a home in Windemere where it may be as high as $1.70 per $1,000. Locals think this is outrageous but when you consider the benefits that homeowners gained via Prop. 13, people in other states think we have it made.

Of course we can't afford to maintain our roads and we can't agree a budget that works in California so maybe it is a two-edged sword!

Bernard Gibbons

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Bernard Gibbons, DRE License # 01331583
J. Rockcliff Realtors, 15 Railroad Avenue, Danville, CA 94526
Phone (925) 997-1585 - bernard@bernardgibbons.com
0 votes
Dp2, , Virginia
Thu May 20, 2010
Although the tax assessment, current market value, and list price are independent, one may use all of that data to perform a market analysis on a specific property, neighborhood, locale, and/or region. Although I'd base my offer price on the current market value, I'd also incorporate various trending elements gained from my market analysis into that decision.

For example, let's say that the current market value for the properties in a particular neighborhood of Fremont has been (and still is) within +/-10% of the tax assessment for the past 6 months, the list price for properties in that area has been within +/-15% of of the tax assessment, and the list price for a specific property is $100K greater than the current market value. p So is that list price reasonable? The answer is it depends. If that $100K is 1% of the list price, properties in the area are appreciating at 3% annually, and the seller is willing to carry back 80% to 90%, then that would be a good deal to me. Yet, if the current market value of the property is $200K, the median sales price is $220K, and the current market value has been trending downward 0.5% per month, then that list price would be unreasonable to me.
0 votes
Patrick Thies, Agent, Anytown, IL
Wed May 19, 2010
here in California due to Prop 13. Your taxes will be $1.25 per thousand dollars of purchase price and will remain fixed for as long as you own your own
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Really Carl...this is why I follow questions on Trulia. Here our taxes go up every year due to regular assessments that are based on previous years sales. During the declining market value years, the assessed value were much higher then the market values. The multipliers have been raised to keep the taxes up where towns were accostumed to getting.

I would love to have a fixed rate considering I have been in my house for 24 years. Although I don't know how our schools would survive seeing that 2/3 of our real estate taxes go to the schools.

Very interesting to know that about CA. Knowledge like this is useful when dealing with transferees.
0 votes
Steven Ornel…, Agent, Fremont, CA
Wed May 19, 2010
Hi Ran,

The tax assessment value should not be used for making a "market value" offer. The County-based "assessed value" of the property is not necessarily the current market value. This is because Proposition 13 limits increases in property tax to a max of 1% per year. If the home was recently sold, then the assessed value will more closely match the market value; however, the property tax assessment is set on January 1st of each year. One of the things that make this so confusing is the overlap of assessments and the fiscal tax year. The actual tax lien amount on a property is figured on the 1st of the year, but the actual fiscal tax year starts on July 1st. You can see this here:
http://docs.Steven-Anthony.com/PropTaxGuide&Impounds.pdf

Here's the bottom line:

You should only be using a Comparative Market Analysis (CMA) to determine your offer price. A CMA always provides the best representation of market price/activity/trend direction - for the individual property details you search on. Your Agent should prepare a CMA for you so you can better arrive at final offer price that takes into consideration of what the current market is for the type of home you are looking at.

Best, Steve
0 votes
The Medford…, Agent, Fremont, CA
Wed May 19, 2010
Ran:

As for the assessed price going forward, remember that when you buy the home, your assessed value property taxes will be based on the purchase price and, unlike the scenario Patrick mentioned for his state, will remain constant here in California due to Prop 13. Your taxes will be $1.25 per thousand dollars of purchase price and will remain fixed for as long as you own your own.
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0 votes
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