REThink Real Estate
REThink Real Estate
Q: I am currently in the market for a new home. I have found a property that I really like; however, it is priced $200,000 over the tax assessment. It is in the country, so there really aren't any comps that I can find near the property. The only thing I can really find is that the house near it sold for close to its assessed price last year.
Why would an agent even list a house with a price above the assessed value? In general, would a lender even finance the property for that much over the assessment? --Lesa
A: It can be very difficult to get a handle on the actual market value of any home on today's market. Many buyers and sellers are finding it difficult to come up with comparables that support their agreed-upon price, even in cases where there are multiple offers. Add to that the complication of a rural property that you called out -- very few comparable homes, much less sales, even exist nearby -- and you can have a real dilemma on your hands when it's time to figure out what such a property is worth and/or how much to offer for it.
Here are a few need-to-knows that should inform your thought process around this home:
1. The assessment is largely irrelevant. As a global rule of thumb, the real estate market moves faster -- much faster -- than the tax assessor. As well, there are lots of reasons assessed values can be wildly off of from a home's fair market value. First among them is that homeowners have a deep, vested interest in depressing their home's tax assessment: it's the basis for their property taxes.
So, tax-savvy homeowners jump through all sorts of loops, legitimate and less so, in an effort to get or keep their assessments (and property taxes) low, from failing to report improvements to the property, to submitting aggressive appeals of their assessments using not-so-comparable sales data. And no, an assessment lower than the true fair market value doesn't necessarily help you if you do buy the property; in many states, tax assessors revise the assessed value to the purchase price when you buy it.
I'm not saying the low assessed value is wrong or off, or that the sellers aren't overpriced or delusional; I'm just saying that the assessed value is not dispositive of what the property's true fair market value is. In many cases, it might actually be completely irrelevant.
2. Maybe the list price is fair -- or fairer than you think. What's more, the definition of a home's fair market value on any given Sunday is what a qualified buyer would be willing to pay for the property on that day. And, as you already understand, the best way to gauge that is by what similar, nearby homes have sold for as recently as possible. This is where the fact that the home is rural and that very little comparable sales data exists becomes a problem.
This will likely also become a problem for any buyer that attempts to purchase the property with a mortgage; the lender will require an appraiser to provide comparables and/or some other strong argument that supports the purchase price.
As many agents will tell you, in lots of areas, the market has heated up somewhat this year and this spring. If the property is desirable to buyers now, it's possible that the home is actually worth that much more than the nearby home sold for last year. It's also possible that the sellers believe that their property is larger, more beautiful, more upgraded, or otherwise $200,000 different or better than the other property.
Ultimately, only you can decide whether you agree; it might be a good idea to look through any pictures or old listing materials your agent can find about the other home, so you can do your own compare and contrast.
3. Maybe they're overpriced. The fact that it's priced $200,000 higher than the assessed value leads me to believe that we're probably talking about a relatively expensive property, even if it were priced properly. At higher price ranges, it's more common than elsewhere to see sellers price higher than they believe the place is worth, assuming they'll need room to negotiate downward to meet a buyer's demands. And virtually everywhere, at every price range, buyers know that there are simply some sellers that are bizarrely fantasy-based in their pricing.
I wouldn't assume that the agent had much to do with it; remember that agents are, by and large, vocally bearish on their sellers' overoptimistic expectations about pricing. If the place truly is overpriced, chances are good that the listing agent has decided to list it at the price and allow the market (i.e., few or no showings, no or only lowball offers) to "educate" the seller that the price needs to be lowered.
4. The list price should inform, but not govern, your offer price. This is real estate, remember, so nearly everything is negotiable -- and especially price. The list price and any information about the seller's motivation level or priorities that the listing agent will give your agent should definitely factor into your decision-making about how much to offer, if you decide to make an offer. But so should your own good judgment, common sense, personal financial resources and analysis of the relevant local market data, which your agent should happily help you undertake.
Do what you can to make the best offer that takes into account all of these factors; don't feel forced to overpay for a property because the seller is unrealistic.
If you can wait for a while, you might see the price come down on its own, but before you choose that strategy, be sure that you're comfortable with the reality that some other buyer might make a move. It never hurts to have your agent contact the listing agent and suss out the seller's willingness to negotiate, or to simply let them know that you'd like to be notified of a price reduction or if they receive any other offers.
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