Some first time home buyers in the San Jose or Silicon Valley area get confused by the “assessed property value” of houses, condos, or townhouses: they mistakenly think that this number has some bearing on the real estate market value. It doesn’t. The assessed value is used only for determining the amount of property tax being paid.
Residential real estate in California is reassessed upon transfer of title, or change of ownership, in most cases (there are some exemptions). From there, the assessed value can only go up 2% per year at most (thanks to the passage of Proposition 13 in the 1970s). When property values decline, as they have recently, owners of properties with higher than market value assessments can appeal and get a temporary rollback in valuation for the purposes of having property taxes lowered. This is very very common (and even so, the assessed value is usually still off as it’s based loosely on the January values of that year – the values are often higher than market value for these petitioned properties). The tax assessor’s office has a lot of latitude in determining the assessed values; it is nothing at all like an appraisal, which should use strict comparisons.
Let’s look at a few hypothetical examples, taking tract housing with the same square footage, layout etc:
1 – If a couple purchased a Cambrian Park house in 1960 to 1970 and paid $20,000 for that property, but today’s value is approximately $500,000, the property tax being paid will reflect the long term ownership and won’t be based on the current market value. That couple might be paying $600 to $800 per year in property taxes with a corresponding “assessed value” of about $52,000.
2 – The property next door, with the same floor plan, same exact improvements, that was bought yesterday for $500,000 will have an assessed property value of $500,000 (reassessed upon change of ownership) and property taxes of about 1.25% per year, or $6,250 per year. Same house, same everything – except length of ownership.
3 – Now let’s say that same layout, same street, same builder, same schools, same condition – sold at the or near the height of the market for 25% more or $625,000. The owners of that San Jose house might have a property tax bill reflecting the higher price paid, so about $7,812.50 per year. These homeowners are unhappy that the values have slipped, unhappy that they are paying taxes based on equity that they don’t have, so they gather some comps and appeal the Santa Clara County Tax Assessor’s office to get a rollback on computed valuation and therefore lower property taxes. After reviewing the numbers, let’s say they are granted a temporary lower value of $550,000 (it’s seldom accurate and is often high with these appeals) and taxes paid get readjusted to $6875 for that tax year.
So the same house but with different owners can have wildly different assessed valuations: $52,000 or $500,000 or $550,000. Only one of these reflects an accurate “market value” – the one that was bought yesterday.
Even then, there are caveats, so don’t accept any “simple answers”!
The property that closed at $500,000 may have been sold As Is and the buyers may have agreed to do $50,000 worth of improvements that were needed. In that case, if you compare the same floorplan in the same little development or subdivision, your estimation of value could be off by 10%. It is important to find out the details of the sale, and often those are not in the public print out, but only in the real estate licensee version.
Understanding market value is not a simple or easy task most of the time. Don’t make the mistake of factoring in the assessed property value – it will only muddy the water and not provide any constructive information to you.
Sellers, if your assessed value from the county tax assessor’s office is very low, realize that some home buyers (either looking for an excuse or simply not educated) may try to use that low number as a reason for a terribly below market offer. If you have petitioned for a lowered value, this may especially be the case – so it might be good to disclose what you’ve done upfront. Talk to your Realtor and be prepared.
For more reading on real estate valuation:
The Santa Clara County (Silicon Valley) Real Estate Market Trends Report – published early each month
Request an online pricing evaluation of your Santa Clara County home by Mary Pope-Handy (free)