BUYER: Should I offer just a little more than the assessed valuation?
A lot of Buyers think there is some kind of magic ratio between the assessed value and the offer price that will be accepted. I usually try to explain that the assessed value leans heavily on the square footage of the home and the size of the lot. It has less relationship to condition and curb appeal.
Market value, or the price that will get an accepted offer, is more closely associated with buyer appeal. The condition, curb appeal, decorating, landscaping, and recent updates carry more weight than square footage and lot size.
Since not everyone in town accepts my reasoning, (always a few skeptics, y'know?) I decided to see if the sales stats would back me up. The two charts that follow show the sales in my hometown in 2010 and 2006. The sale price of the homes are across the "x" axis, or in other words they are arranged from left to right, with the higher priced homes to the right. The line follows the sale price as a percent of assessed valuation. In other words, if every house sold for exactly it's assessed valuation, we would have a straight line at 100%. It would certainly make pricing homes a lot easier.
As you can see, some of the foreclosed, REO properties sold for between 40% and 60% of their assessed valuation, with sale prices between $16,000 and a little over $40,000. From that point on, it gets harder to see a trend.
You certainly wouldn't want compare the home sales around $67,000, with one at 40% of the assessed value, and the next one at 120% of assessed value. Similarly, around $142,500 we have one selling at 120% of assessed valuation, with the next one selling at 80% of assessed valuation. Obviously, there is way too much variation in sale price to base your offer on the assessed valuation.
I had a similar set of numbers saved from the 2006 home sales for the same city, and was curious to see if the same patterns were there when things were booming, so I plotted the second chart:
A few differences showed up. With no distressed property sales, there were no sales below $54,000. With a strong seller's market, almost all properties sold for more than their assessed valuation. A great majority sold for between 100% and 150% of their assessed valuation.
Notice that there still exists a huge variation between properties in the same price range. At several points on the chart, one property sold for 150% of its assessed valuation, while another sold for only 100% of its assessed valuation. While the "average" sale price looks better against the assessed valuation in 2006, there is too much variation to tell where a property should be priced based on its assessed valuation.
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