In the hypothetical
scenario above, I touched briefly on the topic of “adjusted sales price.” I included actual characteristics of the
selected comps and offered some suggestions for the differing characteristics
that would be considered and why. Those
reasons were completely speculative
on my part. I know the actual amount to
which the comp was adjusted, but I have no idea what characteristics the County
Assessor’s office actually considered, nor the valuations applied to each,
which ultimately resulted in the adjusted price.
And again, if you ask them, they won’t tell you. I know, I have, repeatedly.
https://www.stlouis-mo.gov/government/departments/assessor/frequently-asked-questions.cfm
Determining the fair market value of a home is not an exact
science. Even if it was, the properties
that are being compared are most likely not going to be exactly the same. That still doesn’t mean it can’t be done, and
even done well.
Real estate agents determine market value every time they
list a house for sale, as they need to be able to tell potential buyers how
much the seller wants for the house. Not
only is it a basic requirement of their job, real estate agents are highly
motivated to determine an accurate
value. If they value a house too high,
then it won’t sell quickly, and possibly not at all. If they price it too low, it sells quickly,
but then cuts into the seller’s investment, and also into their own commission. If they overprice or underprice too many
homes, the agent gets a bad reputation and sellers lose confidence. Eventually the agent is out of a job.
The County Assessor’s office has the same responsibility of
determining fair market value, except that they do so for tax re-assessment
purposes, not for marketing. They’re
also doing so because it’s mandated by Missouri Statute, not because the
property owner requested it.
But the differences don’t end there. Let’s consider motivation. Whereas a real estate agent personally bears
a significant portion of the consequence if they overvalue a house, the same is
not true for the County Assessor’s office.
If a property is over-valued by the County Assessor’s office, then the
consequence is to the property-owner, in
the form of higher taxes. In order to
get it corrected, the property-owner
has to spend their own time and effort to appeal, and even then, they may or
may not be successful when, since by the nature of valuation, they’re arguing
“opinions.” In the case of overvaluation by a real estate agent,
the agent won’t get paid for doing a bad job.
But try not paying your real estate tax bill because of a bad assessment
and the County will legally take the house away from the property-owner.
Even if the property-owner follows protocol and appeals the
valuation, this is not a menial task. It
takes time and effort to compile information to argue an appeal. If the property-owner is a working
individual, and they most likely are, meeting with the assessor will probably
require that they take time off work.
Speaking from experience, it’s a bit frustrating not getting paid to do the
work the County personnel were already paid to do but did badly, and then taking
time off work and not getting paid at my real job to sit at the appeal so the
County representative can get paid again
to hear me present the research that I just worked to compile. Manually.
Because I don’t have access to their database.
All of which would be completely unnecessary for
property-owners if the County Assessor’s office simply did their job better in
the first place.
Where is the
motivation for the County Assessor’s office to do a good job and assess
accurately? What is the consequence to them if they don’t?
But let me get back to the primary topic of determining market value, and let's take a look at a real-life example of adjusted sale price.
I suggested earlier that you might want to spend a bit of time on the section labeled "Assessor's Comparable Sales." If you click on this link on your property page, you will see the comparable properties used and the adjustments to each. It won't itemize what was adjusted or why, just the final amount. And you can only get this for the current assessment year, so selecting a different tax year from the drop-down will not change the information shown on this link.
But let me get back to the primary topic of determining market value, and let's take a look at a real-life example of adjusted sale price.
I suggested earlier that you might want to spend a bit of time on the section labeled "Assessor's Comparable Sales." If you click on this link on your property page, you will see the comparable properties used and the adjustments to each. It won't itemize what was adjusted or why, just the final amount. And you can only get this for the current assessment year, so selecting a different tax year from the drop-down will not change the information shown on this link.
Clicking on
the link on your property page should take you to a page that looks like
this. There are exceptions, so if the
link on your property doesn’t, it could be that your valuation may have been
calculated using another method. I
suggest contacting the County Assessor’s office at 34-615-4230.
At the bottom of the spreadsheet, you can find the sale
date, actual sale price, price per square foot, statistical model estimate, and
adjusted sale price for each comp.
You should be able to take these adjusted numbers and put
them into the County formula below and come up with the last number, the
“Market Value Estimate.” This is the
final value that affects your tax bill.
https://stlouisco.com/portals/8/docs/document%20library/assessor/Brochures/ReassessmentBasics2017.pdf
But let’s take a closer look at the other numbers in this
section, the real-life numbers,
before the County applies its undisclosed formula for calculating the adjusted
sales price. Take a look at the values
in the Price Per Square Foot row. This
is calculated simply by dividing the actual sales price by the total square
feet. This value is what separates the
men from the boys, figuratively of course.
These are supposedly “comparable” properties, selected by
the County Assessor’s office. Notice the
wide range of values for “price per square foot” for a couple of the houses.
According to the Missouri Statute, comps are supposed to
represent properties not more than one mile from the site and similar in size,
age, floor plan, number of rooms, etc.
If these are, in fact, comparable properties, then why would the price
per square foot vary so significantly?
The first thing I notice is that the third property listed
was sold in 2016, almost three years ago.
To make for a more valid comparison, that value should be adjusted to
something more current.
According to Mr.
Zimmerman, housing values have increased by 15% since the last reassessment, in
2017. So if we adjust the sale price of
$340 by 15%, we get a new sale price of $391k.
This value is much more in-line with the sale price of most of the other comps. And the price per square foot is raised to
$140. Still a bit low by comparison, but
since the property is located on the same street, the specific reason for the
variance is not obvious. The rest of the
information on the property description still qualifies this as a very valid
comp.
I also noticed that the fifth house sold in 2016 as well, a
couple weeks before the third house. If
I apply the same 15% adjustment to that property, the sale price increases from
$525k to $604k, and the price per square foot from $212 to $244. How is a property with an adjusted price of
$244 per sq ft even remotely comparable to properties priced around $175? How is a property with an adjusted selling
price of $604K even remotely comparable to ones that sold for around $400k?
Simple answer --- it isn’t.
I’ll prove it further in just a minute.
But first, notice that even after the County Assessor’s office adjusted the sale prices, the
last house was still priced at almost $45k more than any other house. This inappropriate selection of a comp will result in an increased assessed
value, and subsequently in increased tax obligation, illegitimately.
Now for the proof.
The subject property is a 2-story on .15 acre in Des Peres. The fifth comp is a ranch located 1.43 miles
away in Town and Country, on almost a half-acre. This is NOT a comparable property, nor does it reflect the definition in the Missouri Statutes, but it IS an expensive property. Worse,
this information is compiled by the County Assessor’s office, so they are fully
aware of what they’re doing.
And it’s not just about picking, “valid” or “legal” comps. It should be about picking the BEST comps.
For example, note the three property descriptions
below. Which of the two properties in
the second and third columns would you comp to the property in the first
column? Either one is valid by
definition of Missouri Statutes, but which would be best? These have a lot of similarities.
The one in the third column sold for $483k. The County Assessor’s office picked the one
in the second column, which sold for $590k.
Do you believe that was the best choice?
Let’s see if you’re beginning to understand the lay of the
land in regards to these “Comparable Sales” links. Do you see anything wrong with any of these
comps?
Once again, a 2-story being comp’d to a ranch, twice in this
case. One is over a mile away. There is no logical reason why these ranches
would be used for this house. It’s not
as though all the other property factors are spot-on. They don’t even match bedroom and bath
counts. There were other valid comps available that would have been appropriate.
Unless, of course, your focus is on price and not
comparability.
The two ranches were the second and third highest-priced
sales on the list. The second ranch that
was located over a mile away was adjusted by the County Assessor’s office and
increased in value so that it became the highest-priced sale price on the
list. It should have never been on the
list at all.
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