Determining Value of Single Family Home

[Matthew Pierson]

Hello!

So I am new to real estate investing in general, and I am starting to play around with some of these calculator tools. Is it typical that Tax assessment is significantly lower that what the estimate and asking price of the property. For example, I was looking at a property that had an estimated value of $184k, asking price of $159k, but a tax assessment of $121k. I just don't understand the huge discrepancy.

[James Galla]

Hi @Matthew Pierson, tax assessments are normally generated from what is called an automated valuation model ("AVM"). This is computer software that uses different models to estimate the value of a property. Often times, local governments do these assessments every few years. Although the programs use formulas, those formulas are as only as good as the data, and this can lead to inaccuracies. From my experience, the tax assessment value is normally higher than the actual market value of the property. For comparison, it is always advisable to use a combination of the publicly available AVMS (such as Zillow, Trulia, Redfin, etc.) These AVMs have different confidence intervals that you can find online, but if you can review the range of numbers to see whether a general estimated value. In addition to this information from the publicly available AVMs, you should also get a comparative market analysis ("CMA") from a real estate agent to allow you to see relevant comparables in the area. The quality of a CMA depends on the diligence of the agent and whether there are actually legitimate comparables in the area.

You normally want a lower tax assessment because it means you pay less taxes. So, the discrepancy can be caused by a number of things including the available data on the market. On other occasions, it is also possible that the prior owner appealed the former tax assessment to get a lower value. There are a couple of reasons for it to be lower.