Is a tax assessment a useful indicator of market value?
Your local government regularly adjusts your tax assessment and uses it to determine your yearly tax bill, but does this mean it’s a useful indicator of what your home is worth? Not in the Northern Virginia real estate market.
On average, Northern Virginia homes sell at prices that are a great deal higher than their tax assessments. The reason is that the D.C. area real estate market is one of the hottest in the country. In other areas, it’s a lot more common to see homes sell at prices that are closer to their tax assessments, or sometimes even lower than their tax assessments.
Okay, so if tax assessments can’t really be used to zero in on a home’s value, are they at all useful when analyzing market activity? Absolutely! When I prepare comparative market analyses for my buyer and seller clients, my goal is to give them the most accurate estimate possible of the value of a property. This involves analyzing the most comparable recent sales in a property’s subdivision. However, no matter how good you are at picking comparable homes, most subdivisions aren’t full of “cookie cutter” properties. Every property is different, and the key in this analysis is being as objective as possible and removing as much subjectivity as possible from the equation.
This is where tax assessments come in. Analyzed collectively, across multiple properties, tax assessments form a good objective benchmark with which to compare recent sales. For instance, if you discover that on average, homes sell for 30% above tax assessment in a certain neighborhood, this can be a very useful indicator of whether or not you are on the right track with regard to estimating a home’s value.
When it comes time for you to buy or sell a home, you should work with an agent who rigorously analyzes the numbers to make sure that you are getting the best deal possible. Unfortunately, the Zillow “Zestimate” just won’t cut it when it comes to giving you an accurate idea of a property’s value. Home valuation sites use algorithms that are simply too broad to give you a specific idea of fair market value.