Real Estate Question: Tax Value vs. Market Value (comparable sales, sales)

[jskirwin]

Hello
I'm considering a property in Surry county with substantial acreage. The assessed value of the land is $3,200/acre, and the lady at the tax office swears that the tax value is "98%" the market value. A local banker said that acreage goes for $5k or so, and the real estate agents say I'm getting a deal at $8k.

Since comps are hard to come by (a local told me "the only time land comes on the market is when someone dies") and everyone seems to have an agenda, I'm having a hard time determining what the value of the land is.

Anyone's $.02 is appreciated.

[cohaagen]

The only way to determine the "value" of rural land is to hire an appraiser who has experience in that realm, and even then any two appraisers might come up with vastly different figures. I'm a bit perplexed by the statement by the woman in the tax office though...

[le roi]

The market value of a property is whatever a willing buyer will pay a willing seller for it, "in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion."

Market value is not what an appraiser says, not what the tax value says, nor anything else.

[cohaagen]

True, but both appraised value and tax value, in theory, are meant to be the best approximations of that value (though they're rarely the same). Otherwise, one could never estimate value until after sale.

[jskirwin]

Thanks for your responses.
One of the locals I talked to at the nearby general store said that land only came to market "when somebody dies," - and that doesn't happen all that much in the community so it's difficult to judge what the land is selling for nearby. Using Zillow.com I was able to compare sold prices with tax assessments and it appears that the assessments were generally lower than the sale prices - but not in all cases and with alot of variance.

The buyer purchased the property in 2007 and listed it a year later for a third more than he purchased it for. Over the past year he has come down some - but is still asking about 15% more than he paid for it. The property is still way overpriced - but by how much? That's what I'm trying to figure out.

[cohaagen]

That's a simple answer - It's overpriced by as much as what he's asking minus what you're willing to pay.

[jskirwin]

Originally Posted by cohaagen

That's a simple answer - It's overpriced by as much as what he's asking minus what you're willing to pay.

Most conventional mortgages I'm seeing require a property appraise for the selling price - and appraisers have gotten strict since being blamed partly for the housing meltdown. So this is only true for those paying cash.

[cohaagen]

I've seen quite a few bad appraisals come through lately; way undervalued, resulting in people having problems getting approved for mortgages. I feel like part of the tin-foil hat crowd when I say this, but I can't help but think that there's some amount of collusion between lenders and their appraisers. I saw an appraisal the other week - House is clearly worth between $185,000 and $200,000. 2009 Tax value is $198,000 (that's after the revaulation). 8 recent sales in the same neighborhood, all very similar to this one - same # of beds, baths, garage spaces, same lot size, 3 on the same street even. Every one of those homes has sold since March, and every one sold for between $190,000 and $210,000. Yet this appraiser chose just one of those sales as a comp, and then picked the other 2 from different neighborhoods; one from more than 2 miles away with fewer bedrooms, fewer baths, less square footage and no garage. Big surprise - the value he came back with was $170,000 and the prospective buyers couldn't get their $190,000 mortgage.

[le roi]

I'm not disagreeing with your general point cohaagen, but I wouldn't think that a 3 to 5 month old comp would be worth using.

Also, I'm under the impression that appraisers use very strict time limits on comps. I could be wrong, but I want to say that it is more like 1-2 months or less.

[cohaagen]

But when there are more comparable sales available from the same time period? If there are 3 nearly identical homes sold within 1 mile of the subject property within the past 2 months, then why use 2 others from farther away that have little in common with it? This guy had his choice of 5 of those 8 sales that were from the month of June. He picked only one, and then picked 2 others that had little in common with the subject property. I'm no professional appraiser, but it smells funny to me. I'm not a fan of this concept of lenders getting to choose who will perform their appraisals. It seems more fair that a system should be in place similar to the assignment of public defenders to indigent defendants. I've seen far too many people get screwed out of buying homes just because the banks are in CYA mode.