In addition to a Comparative Market Analysis (CMA) which all agents use to help price homes correctly, I place a lot of value on a Tax Assessment Analysis. I first learned how to prepare this helpful alternate analysis from the person who encouraged me to get into real estate in the first place. This was before technology came into our lives so my analyses were hand written on a piece of paper and my “Excel” grids were drawn with a pen and ruler. When putting together an analysis today, I use a spreadsheet but when there are only a handful of homes I’ll occasionally get nostalgic and bust out a pen, ruler, calculator and a sheet of paper.
...but I thought tax assessments had nothing to do with market values.
That's true... while tax assessments have nothing to do with a homes value, tax assessments are relative to the homes used, like the square footage is. The tax assessment is simply the value placed on a home for tax purposes. The assessment is updated yearly and the homes annual taxes are based on that number. If someone gets a permit and improves the property, the new assessment reflects the improvement. Assessments are occasionally wrong and should be double checked for accuracy. Additionally, the tax assessments that are used for the analysis should all be from the same year. What’s interesting about using tax assessments is that when they are in the middle of an update and only some of the years are current, you can universally use last year's numbers and it will still work out (most of the time). Another cool thing is that with a “regular” cma, you have to use similar homes (the “comparative” part of cma) but with a tax assessment analysis, you can use different town home models and dissimilar single family homes. An assessment on a rambler will be lower than one on a colonial but the ratios will be similar. One can think of it as being like a square footage analysis where the cost per square foot will be the same in two different sized homes.
In a given neighborhood, I compare the tax assessment to the sales prices to find out the difference as a percentage. Once I have the average, low and high ratios, I can apply those ratios to the subject property's assessment to find out with a fair degree of accuracy, what it should list and sell for. It’s also helpful to give me confidence about how likely a home is to appraise or not.
If you are a "do it yourselfer" and using sold homes from the last 6 months, the math is:
Sales Price ÷ assessment = %
Average the %'s
Multiply the subject property's assessment by the average % to = a possible sales price
I look at the data in a variety of ways. I usually compare:
- List price to the assessment
- Sales price to the assessment
- The lowest and highest ratios to develop a range
- The sales price ratio after seller concessions
- The time line to see if prices are rising or falling
- The Market Absorption Rate
The tax assessment analysis has always been one of my favorite tools as a real estate agent and I use it as a means to back up my standard CMA.
This approach has its skeptics and there are even experienced real estate agents that have a hard time understanding the value of this type of analysis. I've heard them say things like: “the assessment is wrong because it doesn't have a deck” or “an assessment is always 7% (or whatever %) under/over value”. They don’t take into account the law of averages. Some are assessed high and some low. If you throw out some of the extreme highs and lows, the averages usually work out the same. If you are interested in the value a standard cma and what a tax assessment analysis would suggest for your home, contact me. It would be my pleasure to prepare one for you!
Redfin Listing Specialist in Northern VA