How does Assessed Value relate?

23 Replies

So let me preface this by saying I'm still new to the forum and learning the in's and out's of flipping. With that being said...

If you look at a real estate assessment website I see the land value, improvement value, and total value. I take this as meaning... the land value, the improvement value is the value of the home, and the total value is the value of the home on the land combined. Hopefully I understand that right...

Now when I look at redfin, trulia, zillow, ect. and I see a home selling for lower or higher that the total value is that good or bad? I typically see a lot of homes selling for higher than the total value. Is that an inflated price due to value... What should I look out for?

Thanks to anyone who can help. I really appreciate it.

When determining the value of the property, you want the appraisal to be as high as possible and the assessed value to be as low as possible. The catch 22 is they are evaluating the same thing.

Jamal- I wouldn't put much credibility in assessed value. They can REALLY vary from area to area, state to state etc. The ONLY thing I use assessed value for is to determine the depreciable portion of the acquisition for write off. Rich

p.s. I just thought of 1 more thing. The property may or may not have just been re-assessed. This can cause a big difference also.

Check with your local taxing authority. Generally assessed values have little to do with market value. In CA your purchase price generally sets your base assessed value that can't be increased by more than 2 0/0 a year. You can have properties valued at tens of millions that are assessed under $100, 000 and that is what they pay taxes on. You can also have a property assessed at $800, 000 with a market value of $600, 000.

Don't confused assessed value with appraised value.

@Jamal Atwell In theory all the "property values" SHOULD be relatively the same. However, because of politics with taxes and appraiser opinions they vary.

If you really want to know the value of a property you need to find access to the SOLD data for your market. If you are looking at these websites that pull values out of a magic box, then you will have little confidence in its accuracy. Computers can generate values relatively easy but they can't identify value for condition, quality, and location. This is where you come in and need to become an expert. Learn what creates, eliminates, and sustains values IN YOUR SPECIFIC MARKET. (i.e. certain roads, neighborhoods, views, waterways, access, clubs, amenities, etc. etc.)

You need to know what buyers are really paying in your area and as you follow the data you will become more confident in your decisions and know what makes a deal.

Originally posted by @Jamal Atwell :

I take this as meaning... the land value, the improvement value is the value of the home, and the total value is the value of the home on the land combined. Hopefully I understand that right...

That is correct

Now when I look at redfin, trulia, zillow, ect. and I see a home selling for lower or higher that the total value is that good or bad?

It is neither. It is most likely a sign that the homes are not assessed for taxes very accurately. This is typical. Some areas the tax assessment tends to be low, some areas it tends to be higher than the real value, and many areas you can make no generalization.

I typically see a lot of homes selling for higher than the total value. Is that an inflated price due to value... What should I look out for?

No, it is not neccessarily an inflated price. Ignore the tax assessment when trying to evaluate what a property is worth. The only thing the assessment is good for is knowing what the taxes are on a property.

In my market, neither tax records nor the real estate websites are very reliable. They can be great tools, and they can sometimes be right, but generally, they just aren't that accurate.

Assessed values are determined by tax people, typically in mass appraisals. This is a simplification that is unfair to people who do this work but basically, they decide how much taxes they need to collect, and divide it as fairly as possible across population and types of houses. Market value is what the market will pay.

One problem in my area is that the market has been down over the last 10 years, but taxes generally only go up. So the old rule of thumb (that was never correct, but was a rule of thumb) that your assessed value is 80% of your actual value has been turned on its head.

Originally posted by @Rich Weese :
Jamal- I wouldn't put much credibility in assessed value. They can REALLY vary from area to area, state to state etc. The ONLY thing I use assessed value for is to determine the depreciable portion of the acquisition

In CA the land and improvement value is merely an allocation of total value at the time of assessment. It is NOT a number to be used for depreciation purposes. I believe there are people here that are over paying taxes because they do not know this. If you own property in CA that you are depreciating you should check what value you are using.

You do not want to use any of those sites for valuation of a property. the assessed value is used to determine property taxes. Some areas the assessed value will be more than the actual market value. In other areas the assessed value will be a lot less than the market value. Zestimates are infamous for be inaccurate as well as most of the other 3rd party sites. As they are based on info they pull from other public sites. The problem is sometimes there is a delay in getting the updated info therefore the estimated values are based on old data causing a conflict in values.

If you want a better idea of the property's value you should have an agent or several agents give you a free CMA (comparative market analysis). This report will be based on the most recent data available therefore giving you the most up to date estimate on it's value.

I hope this is helpful.

@Bob Bowling Then things have changed in the last 30 years.

I pay $500,000 for a rental home that has a 500K assessed value. The tax bill shows the assessed value at 400K for structures and 100K for land for a total of 500K. That is an 80/20 split with 80% the depreciable basis (talking strictly straight line and not cost segregation or anything fancy.) for 27 1/2 years. Is this not accurate? Rich

Originally posted by @Rich Weese :
@Bob Bowling Then things have changed in the last 30 years.

I pay $500,000 for a rental home that has a 500K assessed value. The tax bill shows the assessed value at 400K for structures and 100K for land for a total of 500K. That is an 80/20 split with 80% the depreciable basis (talking strictly straight line and not cost segregation or anything fancy.) for 27 1/2 years. Is this not accurate? Rich

I'm pretty sure the allocation process has not changed since Prop 13 was passed in 1978. There is a provision in the R&T Code that says the allocation is NOT to be used for depreciation purposes.

It could very well be by accident that the allocation is close on accident or by an appraiser that is very meticulous and had current knowledge on land values in the area but that is unlikely as usually there is a 30/70, 20/80, 50/50 allocation default in each assessors office. There is an investor that posts here that thinks his $700,000 property has a land value of $500,000 and that that is typical of CA.

Call any of the 58 assessor offices in CA and they should ALL tell you about the allocation of land and imp. values or just check out the R&T Code.

The important thing for the OP here is to KNOW the assessing laws for where they invest and the best place to find that is with their assessor or tax collector.

Thank you. Another reason I have zero interest in investing in CA. I left about the time of Prop 13 and haven't invested there again. Rich

Didn't read a thing!

Assessed value are usually done in one of two ways, from past sales that are recorded and the state/county/whatever imposes an inflation rate and/or the are done on a block survey method, using the sq. ft. and values of the area and making adjustments.

For investment purposes, when buying you can argue the assessed value as a negotiation point making the seller come up with a defense to the asking price, but, assessed values do not reflect current market values which is what an investor needs to be looking at, the assessed value has no bearing on market values. I don't even use it unless there is an argument to be made, but for my valuation, it's meaningless. IMO :)

Originally posted by @Rich Weese :
Thank you. Another reason I have zero interest in investing in CA. I left about the time of Prop 13 and haven't invested there again. Rich

Are you kidding? Prop 13 is about the best thing ever for a real estate investor. Well, except for the double digit appreciation and the LOW vacancy and the fantastic rent growth! I don't read stories of renters camping out to be first in line for an apartment with their rental resume and their heart felt essay to the owner telling them how they will cherish the property from cities in Indiana or say Arizona. I also have never heard of equity immigrants coming from any other state than CA snatching up properties for cash with the hundreds of thousands of equity gains in CA.

Fixed rate mortgage, assessed value for taxes capped at 2 o/o annual increases. I know several investors with up to $10,000,000 in properties paying taxes on less than $1,000,000.

What's not to like?

@Bob Bowling while I don't have tenants who line up with essays and camp out waiting to rent a place we also don't have to pay $500k for a 3bd/1.5 ranch. While I don't think your intent was to bash on us and I agree with a lot of the comments you made I've had numerous renters whom have made me cry because they got the house they wanted and wanted to thank us for giving them a chance. I've been invited to birthday parties, got countless thank you cards, and heck even turned some renters into home owners in the meanwhile. So while we can't compete with the appreciation of any of the coasts we have GREAT cash flowing properties that allow investors who don't have a boatload of cash to still make great returns on an amount that would be a downpayment for a house with 3-4% returns in California. I'll now hop off my soap box. #hoosierpride

Originally posted by @Adam Gerig :
@Bob Bowling while I don't have tenants who line up with essays and camp out waiting to rent a place we also don't have to pay $500k for a 3bd/1.5 ranch. While I don't think your intent was to bash on us and I agree with a lot of the comments you made I've had numerous renters whom have made me cry because they got the house they wanted and wanted to thank us for giving them a chance. I've been invited to birthday parties, got countless thank you cards, and heck even turned some renters into home owners in the meanwhile. So while we can't compete with the appreciation of any of the coasts we have GREAT cash flowing properties that allow investors who don't have a boatload of cash to still make great returns on an amount that would be a downpayment for a house with 3-4% returns in California. I'll now hop off my soap box. #hoosierpride

?????? My post was in response to Rich Weese. I even quoted him in my post. He made the jab at CA investing just because somehow the Prop 13 allocation process frustrated him. He alluded to other reasons. I merely stated factual reasons why CA with Prop 13 was probably one of the best states to invest in.

Bob Bowling- I don't know why I'm getting back into this discussion, but I keep getting brought up. Don't speak for me or anyone else other than for yourself. I didn't make a jab at CA investing (If you'd spent the last 5 years on here instead of time to place 60 posts you'd already know that) because of prop 13. I said that was about the time I left- and retired. There are SO many reasons why I have ZERO interest in CA and they are well known by most on BP. Do some research and you'll find my reasons. You seem to love it so please keep it up. Less competition in the States many of us find to our liking.

I'm done with this thread. have a great day everyone. Rich

@Bob Bowling We have Prop 13 here too and I love it so does Arizona the two states you took jabs at. I'm just saying every person has their own investment strategy and I think if it works for you great just didn't appreciate the jab even though it was probably unintended just the same as you didn't with Rich's comments.

Well thanks everyone for the input on this. It's getting a little opinionated here so I just thought I'd say thanks for posting and helping out!

Originally posted by @Rich Weese :
Bob Bowling- I don't know why I'm getting back into this discussion, but I keep getting brought up. Don't speak for me or anyone else other than for yourself. I didn't make a jab at CA investing (If you'd spent the last 5 years on here instead of time to place 60 posts you'd already know that) because of prop 13. I said that was about the time I left- and retired. There are SO many reasons why I have ZERO interest in CA and they are well known by most on BP. Do some research and you'll find my reasons. You seem to love it so please keep it up. Less competition in the States many of us find to our liking.

I'm done with this thread. have a great day everyone. Rich

Excuse me but you asked me a question concerning CA property assessment. I politely responded because I thought you actually had a $500,000 investment property in CA and thought you'd be happy that you may be able to correct your depreciation value and save yourself a few thousand.

Instead I find out that you have no interest in real property in CA, have not for over 30 years, actively complain about CA real property and base your knowledge of CA real property on 30 year old information. Then you reply to me with some passive-aggressive diss on CA real property. What was the purpose of your question to me?

Then you spend one of your thousands of posts to attempt to belittle me for only having 60 posts because you think quantity trumps quality?! As far as researching your thousands of posts bashing CA real estate I think I've possibly read about 3 too many.

As far as your fear of competition from me in your favorite states I think it will take more than me to see any demand increase that is common in CA or Hawaii so don't worry so much about being out bid.

Originally posted by @Adam Gerig :
@Bob Bowling We have Prop 13 here too and I love it so does Arizona the two states you took jabs at. I'm just saying every person has their own investment strategy and I think if it works for you great just didn't appreciate the jab even though it was probably unintended just the same as you didn't with Rich's comments.

No worries! But you are not disputing that I posted factual information. As a fellow Hoosier I meant no insult to you or AZ. It's just a different market. My point was to point out that CA has many pluses for REI. If any one want to discuss the pros and cons I'd be happy to participate. Bitching for bitching sake not so much.

@Bob Bowling no disputes about the facts. Can't dispute that just took issue with the Indiana and Arizona comments especially since that's where my business is and so sorry it just cut a little :) I'm a big boy though and know that everyone is entitled to their opinion hell if I had the money I'd love to be out in California. I'd take 3-4% returns if I could sit on the beach the other 180 days out of the year lol

Unfortunately, I'm in a position where I need to accumulate wealth to hopefully get to that spot, but that is many many many years down the road and I think I'd rather just live there and rent a beach house that's paid for from my cashflow in Indiana rentals :)

Even one's different and that's what makes this forum great. I don't much like for arguing pretty low-key guy just had to stick up for my state!! :) Be well and if you ever decide to invest in the Heartland let me know!!

@Bob Bowling Doesn't Prop 13 mean that Californians who bought their house 30 years ago are still paying super low taxes that have been all but frozen at the old rate, but anyone who buys now will pay through the nose? Or do I have the wrong end of the stick?

Everyone pays based on their purchase price basically. Why should I pay taxes on an $800, 000 condo that I bought for $400, 000 three years earlier? Now when YOU decided to pay $800, 000 for the condo next door you KNEW that you would be paying taxes on your new base and that Prop 13 would restrict your assessed value to increases capped at 2 o/o per year. Ten years later the purchaser at $1.6 will be in the same situation you are in today.

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