Assessing a property asking price

11 Replies

I’m looking at a property on Zillow, the asking price is 158,999. However when I looked at the tax assessment on there for the property it listed as being assessed for 59,000. The property has been gutted down to the studs which means total rehab! I’m not going to buy it because I’m new and don’t want to take this on as my first job. My question is: when there is such a dramatic difference in what it’s worth in the tax assessor office and asking price, which would you offer? I’m thinking I would offer 50k as a max because so much needs to be done.

@Kris Tidwell the tax assessed value has basically nothing to do with actual value, so an offer for 30% of the asking price is just going to be a waste of time, if it makes sense close to the asking price for you go ahead and offer if not just move on to the next property, no sense in burning bridges with an insulting offer.

@Aaron K. The asking price is... in my opinion... is what the house would be worth after all the work is done on it. And the taxes they paid on it from ‘17-19 was for a value of 59,000 not 158,000. That’s why I saw a big red flag when I read it.

@Kris Tidwell the relevant part is that you think it will be worth $158k when the work is done, you should make your calculations on what it is worth to you now from that and the repair budget etc. The tax assessor's value is irrelevant in this case because they do not have an accurate assessment of the current condition, work required, or even the ARV most of the time. That figure is likely based on what it was last sold for and nothing else.

@Aaron K. Ok so how does the tax assessor put a value on the property then? How does the county know how much to charge me in taxes for a house that they have absolutely no information on? I’m confused as to how much they know to charge me if they know nothing about it.

@Kris Tidwell in most jurisdictions the assessments are below actual value, because if they aren't they get every homeowner in the county protesting their assessed value every time which the county doesn't have the resources to properly deal with.  Thus whenever a sale occurs they will assess at the sale price and then adjust up every reassessment period by an estimated amount. 

Hey @Kris Tidwell - as said earlier, unfortunately the tax assessed value isn't too relevant in determining a selling price or value of the property.

If it's a single-family, the most important thing is to look at comps. That's where the value of the property is largely dictated.


1. You need to figure the ARV (After repair value) first.

2. Then figure out the renovation costs

3. Once you have those numbers then you can accurately figure out what your asking price should be.

4. If you can be ALL-IN at 75% of the ARV, you've found yourself a good investment.

Best of luck!

-Tyler

It can be quite confusing when you see a big valuation difference between the value that the tax assessor places on a property and the value that a consumer site like Zillow places on a property. Fortunately, there is a way to figure out what the approximate true value of the property is without hiring an appraiser. First, you need to understand how these two values are derived.

The tax assessed value is placed on each property by the understaffed and overworked property appraiser’s office in each jurisdiction. These offices are responsible for continually updating every single parcel in the area. The only time they can really focus on a property is when it changes hands. Tax assessed values are almost always low…many times very, very low, particularly for properties that have not sold in a long period of time.

Consumer sites like Zillow, on the other hand, use algorithms based on the past sales of properties of similar size and age in the area. The models can only assume that the properties are in average condition for the area. These models, however, can’t account for the nuances of the area. For instance, if a home on one side of the street backs up to the ocean while one on the other side doesn’t, it will struggle to compensate for that huge difference in desirability. No agents or appraisers are visiting these properties when they place an approximate value on the property. It’s a computer program that utilizes public information…nothing more.

The best way to determine the true value of a property is to look at the last few sales of properties that are in good condition that are similar in age, size, and style. This is easier in cookie-cutter neighborhoods. We use at least three "Comparables", but we prefer to use a couple of more than that. We're trying to determine the "As Repaired Value" of the property (The ARV). Once you determine the ARV, you take into account the amount of money and time that it will take to complete the project as well as the profit margin that we need to make. We built a model to help us determine the "Strike Price", or the highest price that we can pay for the property for it to be profitable.

One thing to keep in mind is that financial institutions and servicers that foreclose on properties have a tendency to ignore the amount of work that it will take to bring the property up to the neighborhood standards. That being said, you will see a lot of dilapidated properties at incredibly high prices just sit on the market.

We always confer with a good real estate agent that is familiar with the neighborhood in question. If we don’t know the area well, it’s critical that you have someone in your corner that knows the area and can provide you with information that you might not find on line. Develop your model and trust what your model tells you. Never count on what the seller or a wholesaler tells you the value of the property is. That’s for you to decide.

Good luck! I wish you well. 

What I see in my county is taxes are assessed at last sale, and only rise in small increments.  Could also be a homestead exemption in play.  Example, I’m set to close on a property that’s been taxed at $600/year consistently. Last sale was $40,000 in 1994. When I close, taxes will be reassessed on my purchase price of $97,000.  I should expect my taxes to be ~$1300/year after reset.   

@Kris Tidwell

Yes, there is a difference. Asking price is just a number people throw out there in the hopes that someone on the market will take. They are often generated by agents doing CMAs, comparative market analysis, which is a method to compare properties to guestimate what the fair market value is.

Fair market value is the value at which someone will buy the property within a reasonable time. Taxable value is something a bit different in that it is generally developed by what is called an AVM, or automated valuation model. That's a computer program designed to review comparable properties in the location by a variety of factors in order to determine what the value is. It isn't necessarily fair market value since the figure isn't something that is tested on the open market. Instead, it's just a measure to get close to what your fair market value is since the idea behind taxing is that you want to assess taxes against a property in proportion to it's value.

AVMs are also used in a variety of other circumstances. Most commonly, you can see the publicly available AVMs on Zillow, redfin and the other real estate sites. Lending institutions, however, pay for their own AVMs that are typically more accurate. They do that to get a value figure without paying an appraiser because it's cheaper.

Be careful when reading auditor websites. Often times they will distinguish between taxable value versus assessed value. One may be a portion of the other - in other words, you may only be taxed by a certain percent of the overall value.

In the end, they aren't totally unreliable. You ought to use them in conjunction with other publicly available metrics, including other AVMs and real estate agent CMAs.

Good luck.

Here in Central Illinois the assessed valuation is somewhere between 28 and 33 percent of the actual amount that property will sell for. 

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