Friday, March 12, 2010

Relate Sale Prices to Assessed Values

Almost every homeowner knows the assessed value of her property. Relating comparable sales to assessed values is, therefore, a good way to communicate with the seller.
Sometimes estimating the likely sale price is fairly straightforward based on the analysis that you have already performed. If you can confidently present price, and you are reasonably certain that the seller will not question your recommendations, great.
If, however, you anticipate that the seller wants to list her home for more than you think it is worth, then investing the time in comparing sales prices to assessed values may be worthwhile. You may need to arm yourself with as much information as possible to support your price recommendation. Perhaps the subject property is a challenge to price, and you may need additional analysis to discover the best pricing recommendation.
This step in the pricing process is a bit time-consuming, but can provide some valuable information about how the market is behaving. In essence we are going to compare the assessed values of all of the comparable properties in the market analysis with their respective sold or list prices.
I like to quickly assemble the data on a spreadsheet (I use Microsoft Excel, but this can be done by hand too). Simply list the property address, the list price, the sold price, and the assessed value for every property in the analysis. Once all of the data has been assembled, then you add two additional columns (or rows) for the calculated ratios of sales price to assessed value and list price to assessed value.
For example, suppose one of the sold listings was listed for $200,000, it sold for $194,000, and it was had an assessed value of $220,000. Its sale to assessed value ratio is .8818 or 88.18% (194,000/220,000). Its list to assessed value ratio is .9091 or 90.91% (200,000/220,000).
After you perform these calculations for each property in the analysis you will likely find a pattern. You may find that sellers are consistently listing properties for about 10% below the assessed value and selling for 12% or more below the assessed value as in the above example. Or you may find different trends. You may find that the expired listings were all listed at or above the assessed value whereas the sold properties were all listed below the assessed value. Unless and until you perform this kind of analysis you won’t know.
An assessed value analysis is one that the seller can relate to. As mentioned earlier the seller has been reminded of her assessed value every year for as long as she has owned the property. A seller may believe her property to be worth more (or less) than the assessed value. If you can demonstrate how market prices compare to assessed values in the context of comparable listings, the seller is apt to recognize true market value rather than her own preconceived value.
Furthermore, this additional level of analysis lends even more credibility to you as the real estate professional. It is difficult, if not impossible, to doubt someone who clearly demonstrates competence. Additionally, if you are in competition for the listing, it is highly unlikely that any of your competitors will present this kind of information. If you are working with a reasonable seller, you have earned the listing by going the extra mile and presenting an honest and well-thought-out price recommendation.

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