RESIDENTIAL MARKET VALUES
We all heard the news when it started in mid 2007….”The economy is weakening and real estate values are starting to fall”. Recent news reports speak of an even larger drop in the market value across the nation. As the office in charge of estimating market value for thousands of real estate parcels in Dubuque County, the start of this recession brought an even closer review of selling prices in comparison to assessed values.
How can the true drop in real estate values be determined? Realtor information like average selling prices and numbers of homes sold may be an indicator of the general market, but do not provide the information to accurately determine what has happened to the actual selling prices of homes. Private appraisers are estimating one value based upon 3 or more recent comparable sales, but they don’t report on what the value was 6 months or a year ago. In addition, a small sampling of private appraisal information can’t be used to determine the change for a whole community or county. Financial institutions, hard hit in this recession, have gone from a very liberal lending policy to a very conservative lending policy. This adds to the public’s perception that property values are falling. Even if a property resold, it is difficult to determine if both buyers paid fair market value, or if one was overly motivated to buy or sell. Typically a homeowner does not resell a property they just bought without some outside influences, such as a job transfer.
Iowa assessors are in a unique position on how to check what the market is doing. In Iowa, new values are estimated on each property in the odd numbered years. So as of January 1, 2007, an assessed value was assigned to each home. Essentially we created a baseline estimate of values that can be compared to the actual selling price when the property does sell. When each property sells the buyer or seller is required to complete a “Declaration of Value” (DOV) form. On the DOV, the buyer or seller reports the sale price and if there were any reasons why the purchase price might not be considered a normal “arms length” sale. The Iowa Department of Revenue receives a copy of each DOV and classifies it as “normal” or “abnormal”. They compile a list of the normal sales, and these lists are available to the public via their web site. Click here to see the 2008 sales for the entire state.
We have requested and received a copy of all normal sales from the IDR and then calculated the median ratio for each month during 2007 and 2008. The graph below shows the median sales ratio for each month.
A ratio of 97% means that the assessed value for the median sale was 97% of the actual purchase price. This information obviously conflicts with the national news we’ve been hearing. Further proof that the real estate market is relatively stable was recently released by the Iowa Board of Realtors. They monitor the average selling price of homes in Iowa that were sold by realtors. The Board recently issued a press release stating that between January of 2008 and January of 2009, the average selling price was down just 4%. Click here to see that press release.
As of January 1 2009, assessed values continue to be fairly close to the sale price. This may have been because we had over a year of inflation prior to when the economy and the stock market took it’s downturn in late 2008. Assessed values are averaging just slightly less than the sale prices, and for that reason, most residential values will remain unchanged for the 1/1/2009 assessment. It is also important to note that even if assessed values are lowered, it may not mean a lower tax bill. If all values are lowered by an equal amount, and government spending remains the same, then the levy rate will be increased to produce the same amount of property tax. Click here to see more information on rollbacks.
In these troubling economic times, we will continue to monitor selling prices to the assessed values. If, or when, the median ratio is more than 5% different that our assessed value, the values will be adjusted. (This 5% threshold is a state-mandated amount where revaluation is required.) Assessed values currently are, and will continue to be measured from a comparison of actual selling prices and the current assessed value. Assessed values should not be based upon on information in national news releases or current public perception.
F.Y.I. Residential property is to be assessed at its market value. Market Value is defined as a price at which a knowledgeable buyer and knowledgeable seller would settle upon. The definition also includes a stipulation that neither the buyer nor seller would be under any undue compulsion to buy or sell. Sales from lending institutions after a foreclosure or sales of property in lieu of foreclosure are not considered to be a normal sale.