Good question. While Estimated Market Value can be useful as a benchmark, especially when comparing very similar properties, it is useful more as a guide to relative value than actual market value. A property's actual value at any particular point is time is what a buyer is willing to pay, what the owner is willing to accept, and what the bank is willing to finance.
I took a class for appraisers a number of years ago where it was stated that the target market value for appraisals for tax purposes was 70% of what the property would sell for on the open market… meaning you would expect a benchmark sale price about 1.3 times the Estimated Market Value in the tax records.
Although market changes the last few years may have changed these expectations, any 'formula' would never be truly accurate because of many variables, including…
- how long since the last appraisal
- improvements since the last appraisal
- sales of comparable properties in the last 3-6 months
- location/setting of the property
- condition of the property
- uniqueness of the property
The more unique a property the more difficult it can be to establish value because that usually means it is difficult to find comparable sales. The unique factor can bring value down if it narrows the property appeal to only a few potential buyers… the laws of supply and demand. Conversely, if it fills a specific niche very well and there are not many property choices in that niche it can increase value.
One of the most difficult outside influences in determining value is the effect of location, which can swing greatly either way. Preferred locations can increase value significantly… and objections to the location such as view, noise, traffic, planes and trains, neighboring properties, neighborhood, etc. can have such a big impact that buyers looking at comparable properties simply won't even consider the property if they have other options. This often means that a buyer is only found when the price drops into a lower price category significantly below comparable properties, bringing in buyers who would not ordinarily be able to afford the property and are willing to put up with the objections to do so.
In recent years of declining values properties have more often sold at prices below tax market value than above, but that is changing as tax values adjust down and the market slowly stabilizes. Properties that fill a unique niche are much less affected by market conditions and can have surprisingly stable demand, which also means more stable pricing.
Sharlene Hensrud, RE/MAX Results – Email – Twin Cities Realtor
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