News stories about the housing market typically feature reports on foreclosures and new home construction. Less well appreciated is that sales of existing homes are occurring with increasing frequency at prices below the home's previously appraised value. The graph above comes from the Madison (Dane County, WI) area, but I should think the same principle applies to most of the country.
This past year 65% of home sellers received less than the assessed value of their property. That's way up from the only 12 percent of homes that sold for less than assessed value in 2000, in a major turnaround from the pattern before the housing crash...Understanding this is very important for anyone wanting to monetize their existing home or downsize from an "empty nest." A corollary is that when assessors revalue existing homes (in most communities, this is done on a rotating basis every several years), they should - in principle - lower assessed values to reflect ongoing sales, which may result in lower property taxes, even in the absence of a lowering of tax rates. I am aware of this happening in some parts of Minnesota.
"It used to be you could count on a Madison home selling for more than (its) assessed value. Those homes that didn't sell for assessed value were generally fixer-uppers or homes that belong to distressed sellers." Not so anymore, Miller notes, arguing that market value these days has "very little to do" with assesed value.
What this graph says to me is: Except for 2007-2009, assessors pretty much did a terrible job of assessing actual value.
ReplyDelete-Chuck
Chuck, remember that the period before this was the time of skyrocketing home prices and sales, so the assessments would lag behind the price changes. Every house is not reassessed every year.
ReplyDeleteAnd it also depends on by how much the assessment and the sale disagree - a couple thousand out of hundreds, or tens of thousands. Some of that is mentioned at the link.
Yea, good point, Stan. That would explain the consistent undervaluation before the recession, and overvaluation after.
ReplyDeleteIt also suggests that home prices are going to 'fall' further. I put 'fall' in quotes because the actual real prices might not fall -- just the valuations, which as you point out tend to lag reality.
-Chuck