Foreclosure in Madison>Question Details

Kristin, Home Buyer in Wisconsin

Is it a good investment to buy a home for 15% below its assessed value? I will only be living here 3-5 years.

Asked by Kristin, Wisconsin Tue Jan 1, 2008

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Hi Kristin:

First of all, let's clarify the differences between assessed value, appraised value, and market value:

Assessed Value: Value placed upon a home by the town assessor for tax purposes. These numbers are created and used to raise the tax revenue used by a town to operate.

Appraised Value: The value assigned to a home by a licensed appraiser, usually done when a mortgage is being created and the property is being pledged as security for a loan. May also be done electively by a homeowner for a fee.

Market value: The price a ready willing and able buyer will pay for a home at any particular moment in time.

Clarifying which value to which you refer, I wouldn't focus so much on assessed or appraised value as I would market value, which can be established by studying the most recently sold comparables in your area.

If the home is 15% below what the most recent comparable home sold for, it could be a good investment, especially if you plan to hold for 5 years.

Without more information, it's hard to advise more thoroughly, though.

Hope this little info helps, at least.
3 votes Thank Flag Link Tue Jan 1, 2008
wait another year
and save another 10-15%


good luck
1 vote Thank Flag Link Thu Apr 3, 2008
Other good advice below, especially in drawing the distinction between appraised value and assessed value. However, let me be something of a contrarian.

Let's suppose the home you're considering is truly 15% below current market value. Not some worthless appraisal done for a refi a year ago, and not some worthless assessment. But assume that true comps have sold in the past 3 months for, say, $500,000, and you can buy an identical house for 15% less--or $425,000. And you'll be living there for 3 years, then selling.

Now, you and I don't have a crystal ball, so we don't know what home prices are likely to do in those 3 years. And that's a critical piece of information. However, considering that home prices have been declining...that there are a huge number of homes still likely to go into foreclosure...that the economy in general seems to be cooling...and that investors in some of the harder-hit areas, such as certain parts of California, are bracing for a 5-7 year period of declining, then flat's entirely possible that home prices in many areas will be the same as, or less than, they are today.

So you buy the house for $425,000. Three years from now, the market is still soft, and prices have slipped another 5%. So the comps are at $475,000. Your total cost of selling is probably going to be around 10%--real estate commission, taxes, fees, and the inevitable (in a flat or buyer's market) price negotiating downward. Hey, right now, even in decent markets, it's considered good if a house sells for 97%-98% of its listing price. So you put your house on the market for $475,000, and after 10% in expenses receive $427,500. You've barely broken even.

And yes, you may have received some tax benefits along the way (I'm not an accountant; check with your own accountant for details), but your monthly payments might have been around $3,000, depending on type of loan, taxes, etc. Compare that with whatever the cost to have rented the same or comparable house would have been, and you may find that you'd have been better off renting.

Now, if you're going to stay there for 5 years, your chances of coming out ahead improve. The market has a better chance of strengthening, and you'll have paid down a bit more on your mortgage (if it's amortized).

Two suggestions: Consider a lease-option. Lease the property for essentially the same monthly cost as rent, but have some of the lease credited toward the purchase price. Lock in a price today. If the market improves sufficiently, you can at some point buy the property, knowing you've got some built-in equity. If the market remains flat, or dips, you have no further obligation when your lease expires.

Second suggestion: Buy at a greater discount than 15%. A questionable investment at 15% under market with only a 3 year holding period becomes more attractive if you're getting that same property at 20% or 25% under market. That will narrow the available properties somewhat, but there are some out there. And you may sleep a lot more comfortably, not having to worry whether the market will decline 5%.

Hope that helps.
1 vote Thank Flag Link Wed Jan 2, 2008
Don Tepper, Real Estate Pro in Burke, VA
Kristin-You've gotten some great answers already. There is a huge difference between assessed value and current market value. I'd suggest you have a REALTOR complete a thorough market analysis on the property to give you an indication of the current "market value" of this property. I sold my home last year and the assessed value was $30K higher than what I actually sold the home for. If I were to list that same home today, my sense is that the market value would be similar to what I sold it for last June. The market in that area has yet to recover from overbuilding and overspeculation.

Having a realistic "buy and hold" approach to investing in real estate is a good one. We are still seeing some slight appreciation in most market sectors in Madison. Over a 3-5 year period you should be OK in your investment.
1 vote Thank Flag Link Wed Jan 2, 2008
There are alot of factors that you have to take into consideration. When was the last assessment done (for property tax purposes) What data is the city using to determine the assessed value? For example, I live in Wauwatosa, our assessed value for 2006, was increased over $60,000, because a home 2 doors away sold in 2005 for $245,000. This was at the peak of the market. That same house, went on the market at the end of 2006, and was re-sold (after several months on the market, for $218,000). Since that time, other homes in my neighborhood have sold in the high $190,000's- low $200's. Based on this new market data, numerous neighbors and ourselves went to the City Assessor, and had our assessments lowered - based on CURRENT market data.
Since the market has changed considerably in the last year, and continues to fluctuate, it is important to get a good picture of what the current market value of the home is - not based on old data. I usually advise any of my Buyers to consider any purchase they make on a 4-5 yr plan - meaning, do they feel the property can fit their needs for at least that period of time- since doing a "quick flip" (1-2 yrs) would probably mean they would not recoup their investment, with selling costs, etc.
Another factor is, by owning a home, you will have additional financial benefits, "tax deductions, etc" vs renting. The pride of having something you can improve, and personalize, quality of life etc. Do your homework, and you have a good chance of coming out well in 3-5 yrs. All the Best!
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1 vote Thank Flag Link Tue Jan 1, 2008
Here is the latest and greatest from the Realtors Association of South Central Wisconsin on the latest statistics in the South Central WI MLS. Please note in towards the end of the information what it states about mortgage rates vs. housing prices...perhaps that will help you....

The February statistics are now available, and are positive. Although year to date sales volumes are down for residential homes and condominiums in Dane County from last year, you have to remember that we just finished a record setting snowfall season, and we all remember the problems that created.

Sales are up over 30% from last month, showing a substantial rebound from the January numbers. Historically February, although usually a shorter business month, does generate more reported sales than January, but that increase had been only about 9% last year, and 11% in 2006. The reports of activity in your offices seem to have culminated in actual closings, and signs are looking good for March as well.
Possibly more important to our customers are the average and median sale prices. Dane County remained solid in both areas, and supports the local contention that homes here have not lost the value that is being reported in the national media.

The idea that consumers are better “waiting until prices drop” is hard to justify. Consumers need to do the math: It takes a 10% drop in the selling price of a home to offset just a 1% increase in the mortgage rate. Mortgage rates are very competitive right now, and waiting to find a “bargain”, may ultimately cause their monthly payment to increase.

With nearly 400 fewer residential and condominium active listings in Dane County than this same time last year, the market is set to maintain values as we move forward.

Information provided by: J. Deininger, EVP, RASCW
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0 votes Thank Flag Link Thu Apr 3, 2008
I agree that you have received many good answers. I can give you advice on the market that I work in, as I know there are many differences in the markets, even if you travel as little as an hour away (I used to sell in Oshkosh and moved to Madison and it was completely different). So, if you have an interest in the Madison/surrounding areas, please don't hesitate contacting me.

However, if you are talking just about Wisconsin in general, there is some good is a great article provided by the Wisconsin Realtors Association that summarizes Wisconsin stats over the last year:…

In addtion to some people losing money on real estate, plenty of people have been able to make money or at the very least break even...which is not necessarily a bad thing. At this point, I would like to believe we have seen a large market correction...meaning that I'm optimistic about the real estate market, as things should only be moving in a positive direction.

The best thing you can do is to seek out a professional Realtor in the area that you are interested in and have them do an analysis for you reviewing all different variables for the type of home you are seeking.
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0 votes Thank Flag Link Wed Apr 2, 2008
With all the calculations put aside. You really need to want to live there.
Is there a reason the home is priced so low? I would suggest working with a financial planner (I have a great one if you need a referral) to figure out your overall financial picture. Many people have purchase real estate as an investment and have lost money.
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0 votes Thank Flag Link Wed Jan 2, 2008

All great advice.

In any real estate endeavor, please remember that real estate is local, not national as the media would have you believe.

If you read/listen to the experts, eventually most of them get past the sensationalism and to the facts (past paragraph 10 or so). There is way too much to debate as real estate is concerned and I don't want to open that can of worms.

I will leave you with the thought that as in most professional areas, your best bet is to consult with a real estate professional/REALTOR in these matters to sort through everything and what is real for the property that you are looking at.

Of course, no one has that crystal ball.

Good luck!
0 votes Thank Flag Link Wed Jan 2, 2008

When trying to decide what is a 'good value', it will help for you to know the market in the area you are looking. You will find in Dane County, properties have continued to appreciate each year.

Once you find the specific properties that you are interested in, you can compare how they are priced to other properties in the immediate area. Also taking into account the age of the property, potential upgrading/repairs, etc.

Feel free to contact me If you would like specific information regarding an area/property.

Hope this helps.
0 votes Thank Flag Link Tue Jan 1, 2008
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