Assessed Value vs. Fair Market Value
As a Massachusetts Realtor who has been around the block a few times, I often come across things written and said by other Realtors who want to make me scratch my head in disbelief.
All this head-scratching could partially explain why I started to lose my hair at such an early age!
One of the biggest myths in Real Estate, at least in Massachusetts, is that a home’s assessed value correlates to its present market value.
Unfortunately, it is easy to see why the general public is often times confused about this because many Real Estate agents fail to educate their clients that there is a big difference. Trust me, looking at assessed values is no better than using Zillow.com to figure out what a home is worth!
When the assessed value from the town is higher than what a property is on the market, you will often see Realtors writing advertising that says, “Come see this bargain home that is priced $75,000 less than the assessed value”. This immediately tells me that the Realtor either does not know anything about property valuation or thinks there will be someone foolish enough to believe the home is a steal.
Someone who knows better will think the property has been over-assessed by the town, and the seller has been paying too much in taxes!
Of course, on the other side of the coin, you will see home buyers who see a home listed higher than the assessed value and, if their buyer’s agent has not appropriately educated them, will improperly use this as part of their negotiations when making an offer.
If more people were better informed, they would know that tax assessments are worthless when evaluating what a property is worth.
Assessed Value is Not The Same as Fair Market Value
When home values drop, many people think their tax bill will also be lowered. If people misconstrue that assessed values and fair market values are the same, they will automatically come to this conclusion.
In theory, this should be the case, but assessed values are a yardstick for a municipality to collect an appropriate amount of taxes to sufficiently cover the state and local appropriations chargeable to the city or town.
A property’s assessed value often lags behind the market because the valuations are not re-calculated until the beginning of the following calendar year. So if the market values of homes are dropping, it is not unusual to see the assessed value being higher. Likewise, if values are rising, it could be the opposite.
Assessed Values Are All Over The Map
Over the years, I have seen some of the strangest things regarding assessed home values. Believe it or not, I have seen some homes that are as much as a couple hundred thousand over or under-assessed compared to their sales price.
I have seen two homes built by the same builder side by side where home “A” had more square footage and a more considerable lot than home “B,” yet home “B” was charged more in taxes due to a higher assessed value. Mind-boggling, don’t you think?
I have also observed that a home that has re-sold more recently will usually have a more accurate correlation of its market value compared to its assessed value than a home that has not sold in a long time.
For example, a home that sold three years ago, more times than not, would seem to have a more accurate correlation than a home that has not sold in ten years.
Yet another example is the homeowner who feels they are being over-assessed by the town and decides to challenge and wins an abatement. Their assessed value is now reset to the lower value.
Does every other homeowner with a similar property get a notice in the mail saying their home’s assessed value will also be coming down courtesy of the research done by Mr. Jones next door? Fat chance, amigos!! This is the case of the squeaky wheel getting the grease.
Appraised Value vs. Assessed Value
Another area of confusion is with appraised values. If you have had a recent appraisal of your property, don’t think for a minute that will have any bearing on your property assessment. It won’t.
Assessed values are different from appraised values, just like they do with fair market values.
What to Do When Your Assessment is Different From Similar Homes
So what are you supposed to do if you think your assessed value is out of line with other homes in your neighborhood or town?
You should head to your local assessor’s office and file for a tax abatement! All the information necessary regarding the application process and the deadlines for filing should be made available to you.
Applications for abatements are due on or before the due date for payment of the first actual bill. The town’s assessor has up to three months in Massachusetts to approve an abatement request.
If you are denied your abatement request and do not feel that the assessor made the proper ruling, you have the right to appeal to the State Appellate Tax Board.
Final Thoughts on Assessed Value
In summary, an assessed value is a valuation placed on a property by a public tax assessor for taxation purposes.
Fair Market Value, on the other hand, is the agreed-upon price between a willing and informed buyer and seller under usual and ordinary circumstances.
It is the highest price the property will bring when exposed for sale on the open market to a buyer who is purchasing with full knowledge of the property’s highest and best use.
About the author: The above Real Estate information on Massachusetts assessed values vs. fair market value was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at email@example.com or by phone at 508-509-4867. Bill has helped people move in and out of many Metrowest towns for the last 36+ Years.
Thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
Once again some very good and accurate information. I don’t participate in setting the value or sale price of the homes I inspect, but I hear this conversation almost daily. A knowledgeable Realtor or appraiser are the only people who can correctly determine the true “current market value” of a home. Assessments are often several years old. Folks should ignore them and ask their Realtor for current and accurate information. As always, buyers and seller should assemble a team of pros and then listen to them. It makes the entire process easier.
Keep the great posts coming!
Rory thanks for dropping in. As a home inspector I am sure you over here quite a few conversations and I am willing to bet a few of them cause you to smile:)
Good points brought up in your post Bill. Assessed value has nothing to do with fair market value and the sooner buyers and sellers understand that the easier time they will have. They can than focus on what truly sets fair market value of a home. (needless to say Trulia and Zillow are not good ways to discover fair market value either)
Kevin – As someone who has been in the business a while I am sure you encounter this topic a lot from various people including other Real Estate agents. It is difficult sometimes to be in an industry where there is so much misinformation distributed to the public. Zillow is another example of an information source that completely throws people off.
Great post Bill – Client just today was talking about how shocked he was a friend listed for so much more than assessment. I have to send him your post!
In researching this area a few years back I also came across the fact that Massachusetts assessors only have to re-evaluate values once every 10 years. Obviousily, doing it every year in a increasing value market is a good thing for the tax rolls!
I also have come across several people who filed an abatement, several times with my market info, and the filer has always been rejected… including myself on a commercial property. No explanation has ever been issued with these “rulings”.
Home owners just want to know the rules. Unfortunately, these rules are held tight to the vest! Can’t beat the tax man!
Ed – It is really surprising just how many people do not realize that assessed home values are a very poor measuring stick for a property’s actual value on the open market. Part of the problem is a lot of Realtors do not know either. It is like the blind leading the blind!
Great article Bill…even though assessed value and market value are clearly two different things, assessments still need to be accurate and fair.
Each year I file an abatement of my taxes and get denied. Then I file an appeal and my abatement gets granted. Why? My market analysis is accurate and will hold up in court. I’m a 21 year veteran Realtor and past appaiser. Unfortunately the average homeowner doesn’t have the stats available to challenge an assessment, don’t want to pay an appraiser to provide them with the “fair market value” of their home, or they are scared of the repurcussions if they challenge the local assessors.
I offer to assist any homeowner in the town I live in with their tax abatement filing. You can just imagine how popular I am with the local “elected and not qualified to serve” Assessors. I’m working with other concerned citizens to change these jobs from elected to appointed (on the warrant for the upcoming annual meeting and this year should pass).
I’m currently working with another group of concerned citizens on getting one assessor thrown out of office for lowering property taxes on higher end homes while raising taxes on lower end homes with no justification at all (allowing this asssessor to get his own taxes lowered by over $1000.) Stay tuned.
Thanks Barb. I am quite sure that you are not making a lot of friends in the town hall but that is perfectly ok in my book. Taxes should be equitable based on facts not on some assessors democratic ideology!
This article was very helpful. Thank you for taking the time to educate us all on the difference between fair market value and assessed home value. My neighbors and I are presently whether we should file for a property tax abatement and there was some concern that if we win, then the new assessed value would compromise our chances to sell at a higher price one day. I thought that a buyer would be less inclined to pay a higher price if the assessed value was lower than the asking price. But this article really clarified the matter and now I understand that the two are completely separate entities.
D Chornovas – You have nothing to worry about as the assessed value and fair market value for homes rarely coincide.
Interesting article. It clears up some of my misconceptions. Luckily I am a first time home buyer in this market who can afford a 20% down-payment. Yet it has been a painful process over last three months with no end in sight. I have been using the assessed value as my yard stick for appraisal in a metro Detroit suburb where assessments are done every year. The 6 month CMA averages do come close to the assessed value, but the range of sold price variation is also huge (foreclosure on one extreme and lots of upgrades on another extreme). I am getting to a point where it seems appraisal should come before inspection if I am serious about a home – way too many delusional sellers out there. I am not looking to low-ball anybody but get a home ‘at’ the fair market value. Yet as a buyer I have to gamble (with help of CMA from realtor) that an offer would come at or below appraisal – when I highly suspect the error band on this process. It sucks that I stand to lose $1000 (inspection+appraisal) every time my realtor (based on her fair assessment) convinces me to offer above what the lender’s appraiser may come back with. Which begs the question why are not appraisers – realtors and vise-versa and why are not every body apt and honest :). Hmmm… just seems like a tough process.
Assessed value is SUCH a moot point here. We are in Clark County along with Las Vegas – very small assessor department, very large county. Some homes here have not been reassessed since the early 90s. Most have not been reassessed even after adding $ amenities such as pool, spa, RV parking.
Potential buyers ask what the current taxes are – I tell them that it does not matter to them – the property will be assessed based on the new sales price.
We got notice to expect the assessor around this year – for an exterior inspection only. That made me remember an argument I had with the (elected) assessor years ago – when he told me that the only thing that mattered was square footage – not the condition of the house, the finish work, etc.
In other words, a home with plywood counter tops would be valued just the same as one with marble.
Since square footage is their only criteria, I guess it doesn’t matter that they hire “assessors” to go out in the field evaluating homes when they have no real estate experience and no education. Almost anyone can run a tape measure.
Assessed values here can be anywhere – and have no bearing on market value.
Hi Bill another great blog. You explain the difference between assessed value and market value very well and in a fashion that everyone can comprehend. This blog will be of great help and I’ll make sure to pass it along and retweet.
Claudia thanks for your compliments on the assessed value vs fair market value. It seems like this is one of the biggest misconceptions in Real Estate.
Marte – I see we are on the same page. It drives me nuts when a Realtor or buyer tries to used assessed values in their argument on why their offer is a good one.
Virginia – Wow I guess there is zero correlation in assessed vs market value in your market!
Bill – I stumbled upon this blogpost by way of a retweet from @memocircle. Absolutely terrific article and echos what we often see in the greater DC/Northern Virginia area and the misunderstanding that buyers and sellers have re assessed vs fair market values. I certainly picked up some pointers about how to explain this more easily to buyers/sellers. Thanks for sharing!
Donna thanks for your compliments on the article. There are quite a few who do not realize there is no correlation between assessed value and fair market value.
Great article Bill! I know I am a little late posting, but wanted to provide more detail regarding the time lag in tax assessed valuations:
Fiscal years for Massachusetts municipalities run from July 1st to June 30th. Towns are charged with estimating fair and full cash value as of January 1. This is known as the “assessment date” – prior to the fiscal year.
For example, the assessment date for Fiscal Year 2012 is January 1, 2011. Therefore, an assessor will look at property sales from the calendar year 2010 to arrive at fiscal 2012 property assessed values. (Note : It appears that Bolton, MA uses sales from 2009 – 2010! see last two paragraphs–> http://www.townofbolton.com/pages/BoltonMA_Assessors/index)
If I was looking to buy a home today, I would rather use recent comp sales from the past 3-6 months vs 14-26 months [of past sales] determine by tax assessed values!