Very interesting topic as I am explaining this a lot
Why a home may sell more or less than its SEV.
A few definitions before we start
SEV - State Equalized Value - According to LARA (Department of licensing and Regulatory affairs) this is One half (1/2) of your property's true cash value. We will discuss why this is no longer the case.
Taxable Value - The value used to calculate your property taxes. A property's taxable value can only increase annually by the rate of inflation or 5%, whichever is less, unless there is an addition to the property (i.e., physical improvement or omitted property) or the property's ownership transferred during a previous tax year.
Home Value - Actual cash value, what the market will bear and what it will actually appraise for.
In the housing market, the old saying “something is worth what someone will pay for it” only holds true if someone has cash. Either enough cash to pay for the home outright, or to pay the difference of appraisal and agreed purchase price. Which in Grand Rapids, Michigan this scenario does happen a lot. As a person can only get a loan for a home if it appraises for the agreed upon sales price, because the bank needs to be assured the money they are lending is worth this risk.
Back in the day, home sellers and Realtors would look at SEV and double it and say this is what the home is worth and list/sell it accordingly. We can no longer do this anymore. Let me explain:
What goes into a SEV and how do they determine value? Although numerous factors are considered by the Assessor’s Office in arriving at the initial market value of a property, increases in market value from year to year are attributable to increased sale prices of properties in an assessing neighborhood as well as additions, remodeling, etc. These increases in market value result in an increase in assessed value (tentative SEV). The sale price of an individual property does not necessarily determine its market value and property is not assessed at 50% of a sale price. After the assessment rolls of local jurisdictions are reviewed and approved (the equalization process) by the County and State, the assessed values become the State Equalized Values. SEVs are not subject to a “cap”.
From personal experience an SEV of a home will be considered if doing a major renovation. My husband and I bought a bank owned home and took it down to the studs, we made major improvements to the home and to the landscape. Our township brought several people from their office to have “look see” we did get an increase in the SEV and Taxable value the following year.
Now 2017, as market prices are rapidly increasing a reassessment of neighborhoods would not surprise me, I fear it's in our near future.
A question I get a lot - Why is my SEV so much higher than my neighbors home? This is so hard to explain and not sure I have a good answer, if in fact they assess neighborhoods and not the house - then why? It could be that one home has major improvements and the other does not. It could be they both have major improvements and the taxing authority only knows about the one. In Kent county some townships, require you to pull a permit for certain improvements, IE: roof, plumbing, room addition, or say finishing off the basement to a living space. However i can assure you the pulling of the permit is missed by many - DIYers or Contractors. I have to wonder if this is an actual oversight or they purposely are keeping it from the township not to get an increase in taxes.
As a buyer's agent, when we see renovations have been done to a home we look for the required permits, as this give us some comfort the work was done right and was inspected and approved that the work was done according to code.
Why is my home loan based on a higher tax rate then the owners are currently being charged? Remember the SEV vs Taxable Value - When a home is purchased the home buyer is taxed on the SEV not the taxable value.
Let’s make it a bit more confusing - the property taxes could be homestead numbers or none homestead numbers. In Michigan you pay a higher tax rate for a 2nd or more homes. You can only have 1 homestead property (unless you are have one up for sale then there is forgiveness with the proper form filled out)
2008 the market crashed and the SEV’s went down! I can remember 2008 when our market crashed - and homes values went down, many neighborhoods filled with bank owned - some neighborhoods more than others. The SEV’s went down, I believe I saw the adjustments start happening in 2010. Fast forward to 2017 these same neighborhoods are having a huge increase in desirability and home values are increasing. However SEV’s from the taxing authority has not caught up yet. So it would not be uncommon to see a SEV at $59,000 When the home is listed and sold for more than 200,000.
As a Realtor, I do not take in consideration the SEV or the taxable value to arrive at a listing price or a fair offer price. The only way to do this is look for what like homes in your area have sold for. This would be fair market value. Then you decide if you want to pay more or less. However, in this market you are probably not getting it for less, and you will most likely will be competing with cash offers.
I will admit, there is so much more that goes into this, this is the quick and fast explanation, and i hope it helps a bit with the understanding and the why.
Comments(0)