October 3, 2014

Hatteras Island Real Estate:
Assessed values vs. selling prices


By TOM HRANICKA

Whenever Dare County revalues properties for tax purposes, a question always arises concerning how closely the newly assessed values reflect actual selling prices. In this article, I would like to provide some insights on this popular dialogue.

Before we begin, a few background comments might be helpful.

Assessed value is defined as the official appraised value of a property for ad valorem tax (property tax) purposes.  State law establishes standards for real property taxation, assessments, and appraisals.  In North Carolina this legislation has the colorful name of “The Machinery Act.”  
To determine values for taxation, the law requires that real property be reappraised at least every eight years, but counties have the discretion to conduct the revaluation more frequently.  In Dare County, the most recent reappraisal of property took place in 2013.
Real property is assessed at 100 percent of the fair market value determined as of Jan. 1 – the effective date of the revaluation.  

Once properties in the county have been reappraised, the value that has been established generally remains unchanged until the next revaluation is completed.  Exceptions to this guideline might include the correction of errors in the original appraisal, changes to land such as subdivision or erosion, additions to existing houses, or the construction of a new house on land that was unimproved at the time the revaluation took place.  In these cases, the appraisal would be adjusted to reflect the change, and a new appraised value would be established.

While there are several definitions of fair market value, the one that I personally like states that fair market value of a property is the price upon which a fully informed buyer and seller agree, assuming there are no undue influences (e.g., health issues, financial considerations, etc.) on either party and assuming the property has been exposed to the open market. In other words fair market value is reflected in the selling price.

I recently reviewed the 137 residential sales that took place on Hatteras Island between January and the end of September. I then compared the selling prices of the properties to their assessed values.

The following graphic summarize the results of that analysis. Distressed properties include short sales and foreclosures.

                   



When the relationship between selling prices and assessed values was studied by price range, some interesting observations emerged. One trend was that only properties with selling prices up to $200,000 displayed a pattern in which the majority of selling prices were below their assessed values. Only in the $300,000 - $399,999 and $500,000 - $599,999 price ranges were there an equal number of sales with selling prices above and below assessed values. In all other price ranges, more selling prices were above assessed values than were below.

This next table provides some additional insight into the ratios between residential selling prices and assessed values for non-distressed properties.
 



My sense is that when all things are considered, the assessed values developed in conjunction with the 2013 revaluation by the Dare County Tax Appraisal & Revaluation Office approximate actual selling prices reasonably accurately. For the first nine months of 2014, residential selling prices on average were within 15 percent of assessed values.

While the selling price of each property always indicates what a buyer is willing to pay and a seller is willing to accept, the tax value of the property can serve as a valuable reference point for buyers, sellers, and their agents to estimate the approximate range of selling prices that might be reasonable for the property. 


Questions and comments may be sent to Tom Hranicka at P.O. Box 280, Avon, NC 27915 or by e-mail to [email protected].
Copyright 2014 Tom & Louise Hranicka.  All rights reserved.



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