Should a home sell for more or less than the Tax Assessment value?

I'm pondering and researching tax assessment values vs. sale prices of homes recently sold in Potomac today. 

I've got a beautiful home listed at $789K*.  It's 2008 tax assessment value is $871K.  It's been on the market about 27 days now.  We've had LOTS of showings, and I expect that it will be under contract any day now.  However, we had one "low-ball" offer of $699K.  When I asked the agent why her client could possibly have thought that they would sell this home for so low, his answer was, "because of the assessment value".  Naturally, I countered with, "but it's assessment value is $871K?"  He didn't seem to care, as he believed that home should sell for well below assessment value.  Although this was a ridiculous offer, it did spark my interest, so I thought I'd dig through recent Potomac home sales to see what the relationship between assessment values and sales prices was.

The home right next door to my listing was on the market for 105 days before it went under contract about a week ago with a final asking price of $739K*.  Rumor is that they got just slightly below the asking price.  This home's assessed value in 2008 is $775K - almost $100K below my listing next door.  My listing has a larger, beautifully landscaped backyard, a larger garage, more than 1000 square feet of living space (per the tax record), and features tastefully updated baths and a renovated kitchen with a huge addition.  This explains the huge delta in assessment values between the two homes.  If you assume that they got around $730K, this home sold for $45K less than the 2008 assessed value or about 6% less than assessed value.

A third home in the same neighborhood sold in the beginning of this year for $735K with a 2008 assessed value of $771K.  That's a sales price about 5% less than it's assessed value.  I hope the new owners will appeal their tax assessment to get the reduced rate.

Yet a home on Democracy recently sold for $750K with a 2008 tax assessment value of $631K.  It sold for $119K OVER the assessed value or about 20% OVER the assessed value.

A home just sold on Cherbourg for $815K.  That's 11% over it's assessed value of $737K.  Interesting.

So, it seems that here in Potomac, assessed values have little relationship to the market value of a home.  From this small sample, we've got a spread from 6% under assessed value to 11% over assessed value. 

I've had several friends ask me to do Competitive Market Analyses for their homes recently.  They are going to ask the tax assessor to reduce their assessments, and thereby hope to significantly reduce the amount of property taxes they will need to pay.  Please feel free to contact me if you'd like me to do the same for you.  Maybe I can save you some money? 

Warm regards,

Colleen Barlow

www.ColleenBarlow.net

 *Names and figures in this paragraphs have been altered to protect the privacy of certain buyers & sellers.