County Assessor Value vs Fair Market Value

7 Replies

I'm just getting started out in Chicago and am wondering why there is such a disconnect between the county assessor's value and the market value of properties.

For example, I've looked at several MFHs on the market in the mid $400k (with close comps), but the county assessor value is closer to $200k.  Why would there be such a disconnect? How should someone interpret this information? Does this just mean I should account for a big tax hike if the property gets reassessed, or are the listing prices just too high?

Thanks for any help/guidance!

Devin

Originally posted by @Devin Drowley :

I'm just getting started out in Chicago and am wondering why there is such a disconnect between the county assessor's value and the market value of properties.

For example, I've looked at several MFHs on the market in the mid $400k (with close comps), but the county assessor value is closer to $200k.  Why would there be such a disconnect? How should someone interpret this information? Does this just mean I should account for a big tax hike if the property gets reassessed, or are the listing prices just too high?

Thanks for any help/guidance!

Devin

My daughter was in a civics class & they were discussing the potential for property  tax hikes in Illinois.  So she asked me the difference between Assessed & Market Value.  Here you go:

 Assessed Value Definition:

Assessed value is the value of a property as of a certain date (usually January 1st) according to the tax rolls of your local government jurisdiction (county or city). This value can be higher or lower than market value based on the assessment ratio, which is a percentage of market value.

What is an Assessment ratio? The assessment ratio is the percentage that each state uses to determine the property taxes. 

Bottom line @Devin Drowley; don't use the county assessor's office to determine value.  Values are determined by the market place which you can only get from recent sales comparables.  

Another explanation could be in the states tax laws. For example, in Texas; appraisers are only required to visually inspect properties once every three years. Also, they may not enter into a property without consent from the owner (in writing). This relates a large discrepancy in actual values versus assessed values in Texas at just about every level of properties. 

It was explained to me by a local appraiser for the appraisal district that they are very limited by the state laws. They essentially stand at the corners of lots with laser measures to calculate square footage of the structures and property. Another option they have is satellite images. Then they guess what's inside. He said 99.999% of the time, as soon as people he hear who they are with, they are denied access to the structure. With the only exceptions being businesses open to the public.

So, the appraiser is stuck with building code standards to determine the stuff inside a property. Just to code items are generally the cheap counters, floorings counters, fixtures, and so forth. So a property that may be market value for $130 a square foot because of amenities will have a lesser tax appraisal value, because amenities are not considered. 

This is a plus for the property owner; as a giant tax break. Be warned, with tax appraisers getting into vacant homes during open houses, you will see values increase. It's a loophole in the laws that the appraisers ar starting to use.

In general their will be a gap between market prices and assessed values.  Overall there is generally a goal of getting enough of the actual value, but keeping the gap low enough to avoid excessive appeals.

Also assessments will generally trail the market, so recent appreciation usually will not be reflected in assessed prices.  Asking prices often build in some expected appreciation.

As mentioned earlier, assessments are done without looking at details of a property.  Square footage increases will often be captured, but remodeling of the same square footage often will not.

Assessments also vary by jurisdiction.  There may be capped at a certain increase per year - so if appreciation exceeds that, they can trail the actual value for a while.

Originally posted by @Devin Drowley :

Thanks for the information and insight @Crystal Smith @Richard D. @Jesse T.!

It helped me set my mind at ease to put in my first offer ever last night.

 Good luck on your offer.  Did you base it on recently sold properties?  That(and income potential) are what should set values rather than tax assessments.

@Jesse T.

Yeah, I put in an offer at list price. Recent sales comps in the area looked like that was a fair offer. The returns look great compared to all of the other properties I've looked at as well - the cap rate is around 7%, and I think I should be able to live there essentially free next year with the rental income paying PITI, maintenance, etc..

The numbers all looked good before too, I was just scared that there may be something I didn't know about that would have the assessed value SO much lower.

Thanks again!

@Devin Drowley good luck with your offer, I hope all goes well for you. Also, I apologize for failing to mention limitations set by the laws as well. @Jesse T. is absolutely correct. In Texas the homestead exemption puts a limit on the increase of the appraisal value from one year to the next. You would see this happen most frequently in a home where the property owner has lived in it for an extended period of time.

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