How to Manipulate Fair Market Value 101

Besides the very obvious reasons why the selection of inappropriate, over-priced comps is a problem, let me show you mathematically just how badly it can impact your assessed value, and subsequently, your tax obligation.

 https://stlouisco.com/portals/8/docs/document%20library/assessor/Brochures/ReassessmentBasics2017.pdf

Let’s play this out in a fabricated albeit realistic scenario.  See if you can figure out what is fabricated and what is fact.

Recall the real-life example of comps selected by the Assessor’s office that I discussed earlier:

https://revenue.stlouisco.com/IAS/

Hypothetical example:

Let’s start with the list of comps above as a baseline and adjust it slightly:

                Same subdivision property #1                          17-Feb-15                             $399,000

                Mason Meadows Ct                                          01-Jul-16                               $525,000

                Loehr Estates Dr                                               29-Apr-16                             $910,212

                Clarjon Dr                                                         16-Apr-14                             $535,000

                Same subdivision property #2                          22-Aug-16                             $410,000

Let’s say the target property is realistically valued at about $400k, and is located in a typical cookie-cutter subdivision with the same five or six models scattered throughout the subdivision.  Assume that the two subdivision properties that were sold nearby are very similar, appropriate comps, and therefore the sale prices of those two properties need very little “adjusting” by the County Assessor’s office. 

Note: that doesn’t mean they won’t.

For the other far-from-comparable home sales used, the County Assessor’s office adjusts the sales prices as follows:

If you recall the prior discussion about these comps, Mason Meadows is an older, smaller ranch, so the County Assessor’s office is able to adjust the sale price higher, somehow ignoring the location of the property being located a mile and a half away in Town and Country.  Loehr is also a smaller ranch, but since it’s only a year old, the adjusted increase for size is offset by a decrease for the newer age and large lot.  Clarjon is a new, larger house on a larger lot so the sale price is adjusted lower.

 https://stlouisco.com/portals/8/docs/document%20library/assessor/Brochures/ReassessmentBasics2017.pdf

So that gives us our “five adjusted comp sales” and a “weighted average of the five comps.”  

Honestly, I don’t know how the County Assessor “weights” the average sales, so this is just a simple average:

The only thing missing is the “statistical regression value based on the neighborhood model.”  If you click on the blue “I” next to the row description on the “Assessor’s Comparable Sales” page, you’ll see this:

https://revenue.stlouisco.com/IAS/

I have not been able to find anything on the County website to explain how it’s calculated, and I’m certain I would be denied an answer if I asked.  I don’t even know if it’s supposed to represent a past value (historical statistic) or an estimation of what it should be worth currently or in the future.  The value isn’t the same as the prior reassessment, and it doesn’t have any correlation to the current reassessment value.  I’ve looked at tons of property data and can’t make any rhyme or reason out of it, and have certainly been unable to reproduce it.

Bottomline, it means the County Assessor’s office can make the number be whatever they need it to be and no one can argue because no one even knows what they would argue.  Ever heard the creative accounting joke of, “Well, what do you want the number to be?”

In this scenario, I’m going to use the value of $425,000.

So now let’s apply the County Assessor’s formula for calculating our final assessed value. 

 https://stlouisco.com/portals/8/docs/document%20library/assessor/Brochures/ReassessmentBasics2017.pdf

Sort, eliminate the two highest and two lowest values, and average the remaining three:

If you review the results of the calculation above, here’s what you’ll find:

• -         The only truly valid comps -- the very similar, same-subdivision homes -- were actually dropped from the list when calculating the final average because the County Assessor’s office selected more expensive home sales as comps.
• -          Even after adjusting the sale price for the property on Loehr Estates, the adjusted sale price was still well over $700k …. as a comp to a $400k house, with a $425 statistical value.
• -          Although this $726k price was dropped before the final average, that wasn’t until after it had been factored into the “weighted average,” skewing the weighted average significantly higher than it would have been otherwise.  And the skewed weighted average was used in the final assessment average.

-          The end result is that a property legitimately valued at $400k would be assessed at $469k.

Let’s compare what happens if more legitimate comps are selected:

In this new calculation, the exact same formula was used.  The only change was to the three inappropriate comp valuations, substituting them for something much more appropriate, and with comps that would actually qualify within “generally accepted appraisal techniques” and abide Missouri Statutes.

-         This same formula applied with appropriate comps resulted in an assessed value of $410k;

-          Applying the valid comps to the example above vs. the prior example using the inappropriate comps would result in a decrease of your tax obligation by approximately $700 per year.

At the beginning of this article, I challenged you to see if you could figure out what was being fabricated and what was based on fact.  So what do you think?

This example was styled after a number of real-life scenarios.  Here are some actual numbers generated by the County Assessor’s office in 2017 for one of many properties treated like this: