Real Estate Property Values and Why They Vary So Much
As we enter the global market and investors are buying property all over the country and all over the world, it is no surprise that there is a lot of confusion around property values. With the new online property valuation sites, we can easily do initial diligence. These conveniences can serve as a great tool, as well as offer a lot of perplexity because you’re deeper due diligence may find many different valuations. This can often create massive confusion.
Below is an example of a random property that I pulled up from an online property valuation company. Please note (this is not intended to endorse or to do discredit any of these online sites) It is only to serve as an explanation of the different values of properties.
Here we can see that the property has an appraised value of only $24,945 while Zillow has it valued at $84,290 and yet it sold for $129,900. I am often called with questions like this especially from our foreign friends who may be accustomed to different methods of valuation.
Let’s try to break it down. It is first important to understand that the tax assessed value is taking into account the average price of homes within a neighborhood. No actual appraiser enters the property and therefore no exact measure of value for the particular property took place. The tax assessor is simply trying to estimate a property’s value based on size and location within the community and how it stacks up to the neighboring homes.
You will see in this picture that backing up to the year 2008 the same property was valued at $138,500. During the down economy these prices adjusted downward. Perhaps the owner of the house at some point in time challenged the value and the county reduced it even further. There are many things that can affect a value of a property. It is very possible at the time of this assessed valuation the property was aged and in dis-repair.
Online valuation companies draw information from the county tax assessor’s office and they take averages within an area. The average of an area can be close to accurate or there can be changes as this information is derived without looking at the actual property or the condition.
The sale price of $129,900 was a price that most often (always when financed) had a live appraisal of the property. Where a licensed qualified appraiser goes into the property and evaluates the property, its size and condition and compares to recent sold properties. This appraiser had to establish true value at or above this $129,900 price in order to finance the property.
Often the prices are more closely matched than this illustration (honestly I was surprised that my random pick of a property was such a large disparity), BUT we see these disparities more and more in a distressed market.
As properties are distressed, the values are often lower. Then as they are purchased by rehabbers, improvements are made that can increase the value of the property. It is during these changes in true value that you may find disparity like this while doing your diligence.
In summary it is always good to do your diligence. Please continue. Raise some questions and research deeper. Often what you will find is a property that was a distressed property that has been rehabbed and the values will eventually be raised by the county as well as the online evaluators to come up with evaluations that are more harmonious.