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Selling Price vs. Assessed Value

Lots of Questions

Everyday on or in the news, we read about rising inflation as it relates to the costs of goods and services. People come home from the grocery stores or restaurants and the common topic is how much more things costs these days. Rightfully so, we have seen price increases on everything. Personally, we often wonder if businesses are just increasing prices because it provides them with an opportunity to increase their profit margins.

Some how when people are looking to sell their homes inflation is a good thing. They feel great when their home has increased in value for no apparent reason other than inflation. The real estate community say it is because of low inventory and location, location, and location.

The above photograph is of a property that sold on April 6, 2023. The information below was taken from the listing on realtor.com. Let’s put a few things into perspective. This property last sold for $477,000 in 2004. This translates to an increase of $418,000 over the 19 year time period. Looking at it from another angle the owners earned $22,000/year for simply owning the property. It sold for 1.87 times more than they originally paid for it.

What really has us baffled is this property was assessed for $604,700 in 2021 yet sold for $895,000 in 2023. This translates that it sold for 1.48 times the assessed value. In 2004 this same property was sold for $477,000 yet was assessed for $391,300, This translates to the selling price was 1.22 more than the assessed value.

This leaves us with relevant questions:

  1. Seeing how the town’s revenue is based on the taxes placed on properties….why are the assessed values so much lower than the selling prices?

  2. When a lending institution provides a mortgage for a property how is it they often provide mortgage amounts that are more than the assessed values?

  3. Many towns and cities are always looking for ways of balancing their budgets or requesting additional funds for operating and capital expenditures. When you purchase any item you pay a tax on the item based on the selling price. Why does this not apply to the real estate market? There are sales taxes when you buy a car or boat - why not a home?