Sign at one of the beach crossovers in south Cocoa Beach. The prayers were answered this morning. Chest to head high north swell hitting all the southern beaches.
It is an almost daily experience for me to have a conversation with a buyer or seller of real estate (or their agent) who is using the Property Appraiser's "market value" of a property to support their own belief of the value of a property. Folks, the only time the PA's "market value" has any worth when buying or selling a property is when you can use it to your advantage in negotiations and can convince the other party to accept it as accurate. First of all let's see what the PA says about the different values that are displayed in a property record. From the PA's website;
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What is the difference between market, assessed, and taxable values?
The market value is the most probable selling price, based on the actual sales of similar properties, less the typical costs of sale.
The assessed value may be less than the market value if the property is a residential property having homestead exemption and is therefore protected by the "Save Our Homes" Constitutional assessment limitations.
The taxable value is the assessed value less any applicable exemptions.
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Right away we see that the PA's market value is not the expected selling price but the expected net after selling expenses. A seller's typical selling costs (real estate commission, doc stamps, title policy, etc.) are deducted from what the PA's black box tells him the value is. OK, seems reasonable. Add about 8% to market value and we should have the expected selling price of a property. Not so fast. That assumes that the black box is spitting out accurate numbers. Let's check the actual numbers.I pulled up the last 27 residential property sales in Cocoa Beach and Cape Canaveral excluding quit claims. I then compared the selling price to the Property Appraiser's 2010 market value. Only five sales fell within 10% of market value, one exactly on the money, two for 2% more and two for 7% less. Of the 27 total, 12 sold for less than market value. They averaged a 19.5% discount to the published market value with one selling for a 45% discount. The 14 that sold for more than market value averaged selling for 29% more than the PA's market value with one selling for 50% more.
Conclusion: The Property Appraiser's published market value is not accurate. If it is to your advantage during negotiations in buying or selling feel free to use it to bolster your position but know that you risk looking foolish and potentially losing negotiating strength if the other party knows the truth or at least reads this blog. This same all-over-the-map inaccuracy applies to Zillow as well. Your best guide to actual market value is using recently sold, nearby comparable properties and making the necessary adjustments to reach an accurate number. One last thought on that process. Beware getting married to a dollar per square foot number. It's a good starting point when the comps are close in size but it is not the end-all metric for establishing value. Ultimately, a buyer decides what they are willing to pay and a seller decides what she is willing to accept. When those numbers intersect, true market value is established.
Good luck in your negotiations. As always, knowledge is power.
"I wasn't worth a cent two years ago and now I owe two million dollars." __Unknown
Buyers need to bear in mind the PA appraises a property for market value ONCE a year. Property values fluctuate over 12 months and market prices can be increasing or decreasing. I have seen the PA’s appraisal of my own properties market value go up and down, sometimes as much as 20% a year.
ReplyDeleteMy own observation has been the Brevard PA's appraisals adjust very well with the market and tend to be on the low side unlike the appraisers in some other counties such as Indian River where the PA is in fantasy land and still has market value appraisals circa 2006-2007 levels.
As you know, there are always buyers who will pay too much and there are even sellers who list for too little (rarely of course) but at the end of the day, the PA has to come up with what is "probable". My thought is the Brevard PA's appraisals are fair in most cases and buyers should certainly consider them in the process of making an offer. But given the annual fluctuations in appraisals, I agree they are probably not a good negotiating tool.