Appraised/Assessed/Market Value & Finding a Dunkin Donut

This is the time of year that I get a lot of questions about value.  Some buyers like to quote the PVA value since it is usually lower, and some sellers like to tell you what their house appraised for when they last refinanced.  Thought I’d touch base on WHY there is such a difference between taxable, appraised and market value.

Think I’ll get taxable, or PVA value out of the way first since it really has nothing to do with the actual value of the  property.  There are two ways the PVA comes up with the assessed value for any house.  The first is the sale price. Somebody pays $125k for a house, it is going to be assessed at that.  If enough time goes by, the PVA people will send somebody in a white Prius down your street to take a picture of the outside.  They then go back to the office, make a cup of coffee, and compare the basic info about your house to recent sales.  The big thing to remember here is that they don’t go inside the house.  I paid $118,900 for a house in 2002.  The typical house on that street was worth about $140k at the time.  My PVA value was $118,900 for years.  Then, we had a sale on the street in 2005 right next door.  My assessed value went up to $135k, which was the sale price of the one next door because they were  the same size.  At that time, I hadn’t put on the new roof or siding.  The inside was waaaaaaay superior to my neighbor’s house, but the PVA peeps had no way of knowing that.  They haven’t been out to reassess since then, so I’ve been paying taxes of a value of $135k ever since.  Since my $135k assessment, the value of the house rose and fell.  Market value is really like ordering lobster at a restaurant.  The price can change on a daily basis.  Every new sale or new listing has an effect on the value of any house.  Bottom line, PVA is only a value to base taxes on.  Nothing else.  It shouldn’t be used for anything but that.

The next is appraised value.  Whether for a refi or a purchase, the thing to keep in mind here is that the appraiser is really just trying to justify a number they already know.  This is kind of like reverse math.  You already know the answer, you’re just trying to come up with numbers that reach the conclusion you want.  Say the number you need for your refi to work is $250k, the appraiser is going to work to see if he/she can honestly say that your house maaaaaay be worth that amount.  They pull comps, do their cut and paste formula and try to come up with $250k.  Like all formulas, the numbers you stick in make a big difference.  Want a cheaper appraisal value?  Pick 3 cheaper houses.  Want a higher appraised value?  Start with the most expensive 3 sales for comparison.  It is similar for a purchase.  The appraiser already knows the contract price.  Remember my house that I bought for $118,900?  Even though the house was rougher than most of the street full of $140k houses, the appraisal came back at $118,900.  Why?  Because that was the number that the appraiser was hired to justify.  When I refinanced about a year later to start the renovations, it appraised for more than I could have sold it for because we were trying to justify a different number…….and there is nothing wrong with that because the purpose makes a difference.  Just keep in mind that an appraisal is really more about comparing your house to recent sales, so the focus is on the other houses.  Market Value is about just your house.

So how do you know what a house is really worth?  I think good realtors know.  Market Value is really all about the number a seller will sell for and what a buyer is willing to pay.  Realtors are best at figuring out market value since we are the ones that see how buyer’s respond to different things.  Where an appraisal is all science, figuring out market value is part science and part gut.  For example, there is nowhere on an appraisal to deduct value for a house that has a pet odor, but any decent realtor knows you are going to get less for that house.  Same with a steep driveway, wild paint, a lack of privacy in the backyard, etc.

So, what value matters most?  It all depends on what you are needing it for.  You want to know what your house could possibly sell for, get an appraisal.  You want to know what your house is worth, ask a realtor……saying that reminds me of one of my favorite lines from my all time favorite movie, Raising Arizona:  “You want to find an outlaw, hire an outlaw.  You want to find a Dunkin Donut, ask a cop.”

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