Yesterday I posted a graph showing the difference between assessed value and market value. Today I have one more real-life example of this phenomenon. The property below was assessed at $210,000, and after my tax appeal process I determined the home to be worth $130,000. That’s quite a difference and represents roughly $800 in taxes. Ouch.

The subject property is around 1400 square feet and all blue dots above represent the past 2.5 years of neighborhood sales between 1200-1700 square feet. This range of square-footage is meant to show comparable properties to the subject since a typical buyer would likely look in this range when house hunting. The vertical line represents January 1, 2009, which is the date of assessment.

As you can see, an assessed value at $210,000 looks higher than basically all sales in the neighborhood, and actually more consistent with a home value from previous months or years. It’s true that a property can sometimes sell at the highest level in the neighborhood, but the subject property does not warrant such a circumstance. When observing recent sales above $150,000 in the market, it’s clear that the vast majority of these sales come from superior tracts in the market area or are remodeled throughout (sold above all other sales because of upgrades). 

I am not saying the Assessor’s Office gets it wrong in every case. That’s not true, and I certainly do not wish to vilify the Assessor because that’s not the way I do things. I’m simply saying that in this case, and in others I have worked on lately, assessed value should have been much lower. I typically take on tax appeal situations where the home owner is clearly over-assessed, and so there is an obvious potential economic savings to be had. Most of the properties I did not take on this year were assessed fairly well or off by 5-10% (too high). 

If you have questions, give me a call at 916-595-3735.

www.SacramentoAppraisalBlog.com The Assessor says $210k, but Market Value is $130k: A Real Life Property Tax Appeal Situation

What sort of a price difference is there between bank-owned properties (REO), short sales, and arms-length transactions in the market? For an example, let’s take a look at a trend graph of all sales in Rancho Cordova below, where blue dots are REO sales, green dots are Short Sales and red dots are typical arms-length sales (per Sacramento MLS).

Each neighborhood, niche, and location will differ in results, but generally speaking, like the data above seems to show for Rancho Cordova sales over the past 2 years, buyers tend to pay more for houses that are non-distressed transactions (notice how the red dots on the graph above tend to be located toward the top and NOT the bottom). When it comes to REO properties, it looks like the price level is a bit higher overall than short sales, though there are quite a few short sales on the upper-end of the market too. In fact, both Rancho Cordova and Sacramento County saw a 7% increase in short sales last year in comparison to the year before, so clearly there is a greater acceptance for short sales in the marketplace.

One important observation is that most of the sales at the bottom of the market are bank-owned. Why is that? Investors typically gobble up the lowest end of the market with all-cash offers because fixer-type properties at the lowest level will not qualify for conventional or government financing. This means first-time buyers utilizing conventional or FHA financing will usually need to look to a price level above the “all cash” market. In light of this segmentation, imagine scraping off the bottom layer of all-cash foreclosures. What would you find? You’d still see many REO properties, but you’d certainly see a good amount of Short Sales too. 

Overall, in my experience as a Sacramento-area real estate appraiser it seems the market price tier goes: 1) Arms-length sale; 2) REO; 3) Short Sale. This is common sense really, but it’s another thing to prove that by crunching numbers, making trend graphs, and observing data in the marketplace. But there are certainly cases and stories and sub-markets that might show a different order for whatever reason - especially depending on the supply of housing inventory and particulars of a given property. Interestingly enough, sometimes there is little to no difference between non-distressed sales and REO sales. For example, what does it do to pricing differences when 90% of all sales in a market are either bank-owned or short sales? In a case like this, since the market is clearly saturated with distressed sales, it’s probably a safe bet to assume foreclosure-pricing is indeed the market and will set the pace for what buyers expect to pay for properties (see a previous post on Patterson having 96.5% of all sales as distressed). In a case like this, there may be no verifiable difference between REO and non-distressed sales.

Let me know if you have questions or insight. Comments are welcome.

www.SacramentoAppraisalBlog.com Is there a price difference between REO properties, short sales, and arms-length transactions?

This is an important reminder. The deadline to appeal property taxes in Sacramento County and most surrounding counties is November 30, 2009. I run a website called www.SacramentoTaxAppeals.com to help property owners in the Greater Sacramento Region in the process of disputing property taxes. We also handle commercial tax appeals depending on the property. We’ve been getting quite a few calls from local property owners lately because the deadline is quickly approaching.

Disputing property taxes does not make good economic sense for everyone, but if it does (or might) for you, let’s talk. If you have questions about the appeals process and whether you might be a good candidate to contest your property taxes this year, feel free to call 916-595-3735 or email me at ryan@SacramentoTaxAppeals.com.

www.SacramentoAppraisalBlog.com  Tax Appeal Reminder: November 30, 2009 Deadline for Sacramento County (and many local counties)