All of us Island property owners received our tax assessment notices from the County recently. As real estate agents we have been fielding many questions about the statements and new assessments. As you may recall, the State has mandated that our Assessor’s office convert to an annual assessment update cycle versus the cyclical system we were on for years. The current values are for a one-year period only, and will be adjusted the next year. The current process is much more stable and refined and is a more accurate system than we have had in the past.
For the last 20 years, the majority of the properties sell above their tax assessments the with the exception of 2008-2013 which was the recession.
For example, during the recession, properties were selling at or below the assessor’s values. However, back in 2006, many of the same type properties sold in an average range of 125%-150% over their tax assessments. These average percentages varied based on the type of property but generally that was the trend. Since 2014, due to market recovery, most homes are again selling above their tax assessment.
Reviewing the tax assessment as compared to the actual sales price for high-end homes is not reliable as they are very difficult to appraise due to custom features. The assessor relies on indications of value from market sales, and when there are not enough sales to determine the value of custom features, it is difficult to find an accurate standard of value for assessment purposes.
I do have to admit, as an agent, that processing an opinion of value for a home in excess of $2.5M can be challenging; the owner typically builds a very custom home with elaborate description of materials. Even licensed appraisers find it a challenge and some contact agents for more details. Again, there are fewer sales of similar homes in that segment of our market so there are not as many comparable properties to review.
As always, it is much easier to be accurate when you have ample data to use.
The Purpose of the Assessments:
Many property owners are chatting about their new assessments. Most of the confusion around the issuance of new tax assessments stems from the purpose and process of the tax assessment. The assessor is required to value properties for tax purposes at true and fair market value. The valuation assigned by a REALTOR for the purpose of marketing or the value assigned by an appraiser for the purpose of lending, estate planning or probate purposes, will most likely be a different amount. The process to the valuation is different for each therefore, the results will vary. Generally, the differences in the process are described below:
Appraiser and Agents:
Both appraisers and agents conduct an interior inspection then identify at least 3 or more truly comparable sales that are recently closed that are physically inspected or at minimum, viewed via photographs in the Northwest Multiple Listing Service. Ideally closed sales should be less than 90 days old. The appraiser and agents spend much more time on the property determining the desirability based on the features and amenities. They also rely upon a cost approach, but a depreciated figure is deducted based on the age of the home and its condition. They will analyze the income approach if applicable. They base the value of docks at market.
Due to the size of our market, finding truly comparable property sales in our County has always been the challenge. A real estate agent even differs from an appraiser as we can use “Pending” transactions as comparable sales. We also consider the current level of similar inventory and absorption rate in the category to assist in pricing a property for the current market for our clients. Pricing against inventory versus closed sales is common in a positive trending market with low inventory.
Read the full article here.
Merri Ann Simonson
Coldwell Banker San Juan Islands Inc