Fair market value versus town assessment
By Vicki Aubry, ABR, SRES, Prudential Prime Properties
Many buyers lose out on great properties because they mistakenly equate the town’s assessed value of a particular property to fair market value of that property. There are a number of reasons why this is so.
Currently the town assessors in most Massachusetts communities are trying to determine the residential tax rate for the town and at the same time come up with the assessment for each property; a daunting task to be sure.
The total tax levy (because of Proposition 2-½) cannot be raised more than 2.5 percent without a special vote of the property owners. Therefore it falls to the assessor to make a determination of the value of each property. Why not just raise them all by 2.5 percent? It sounds simple, but new properties are being built each year. Generally the taxes for those properties are based on the purchase price of the new property so they are considered fully assessed. So of course, that throws off the assessments for the existing properties. Therefore the assessor has to go back and make a determination of the other properties to fit into the total.
Buyers have the impression that each year the assessor visits each property to come up with an individual evaluation. Wow – that assessor would be super human! Rather, they know the nuances of neighborhoods and styles and ages of homes and make an educated determination of the assessment. As homes age and improvements get done the potential for the assessment to be off more and more is quite possible as there are some homes that will not be updated and others that will be totally updated, making the fair market value gap larger but not necessarily the assessment.
Buyers must also realize that in determining the 2014 assessments they are working off of year 2012 – the last year they have completed data for when they begin the process. Therefore there is about a two-year lag time in the process, as opposed to fair market value that happens in “real time.”
The buyer should rely on his buyer’s agent to come up with what is fair market value by looking at the most recent sales of similar homes and then make adjustments for square footage, lot size, location, condition and other factors specific to the home such as number of garages, if the basement is finished or not, and if there are new updates such as granite counter tops, central air conditioning, hardwood floors, and stainless steel appliances, to name a few.
During the mortgage process the buyer also will pay for an appraisal of the property done by a licensed appraiser for the lender. This is a second very detailed analysis which is done to support the value of the property being purchased. The appraiser also will determine the fair market value of the property by considering recent comparable property sales, not the assessment by the town.
So for buyers that really want to buy, there are checks and balances to be sure the home you select will fall into the range of fair market value. But you have to get to the point where you make the offer and it is accepted! For more information on the sales process or for a free home buyer consultation, just give me a call!
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