Tax Values Do Not Forecast Property Values

Posted by Joe Manausa on Monday, March 8th, 2010 at 11:01am.

How to figure out the value of a home based upon its tax assessment using home sales information from the past and present

Recently, a reader found the Tallahassee Real Estate Blog when he was seeking the answer to the question "How to buy a house based on Tax Value."

While this question could have been seeking a different direction, I believe this reader was trying to determine how to figure out the value of a home based upon its tax assessment.

The short answer to this is that you should not use the tax assessor's value when trying to determine the current market value of a home.

There are so many things going on in the assessor's tax value that you would do better throwing darts at a spreadsheet. In order to demonstrate this, we can look at home sales in a Tallahassee neighborhood and search for a correlation between sales price and tax assessment value.

Golden Eagle Home Sales Versus Tax Values

In order to see if there was any correlation between a home's tax assessment and its current market value, I pulled arms length home sales in Golden Eagle Plantation for the past 18 months. The following real estate graph shows each home sale, its price per square foot, and its tax value per square foot.

As you can see from the real estate graph above, there is no correlation between the tax assessment and the market value of a home. The yellow bars represent the ratio between sales price and tax value, and if there was a correlation, the yellow bars would be at the same height (or close to that) across the graph. Obviously, that is not the case.

Sales are graphed based upon the date of closing, with the more recent home sales in Golden Eagle on the left, the older ones to the right. The blue line represents the sold price per square foot, while the red line represents the current tax assessment per square foot. The ratio between these two runs between 30% and 120%, thus showing no correlation.

Save Our Homes Amendment Affects Tax Assessment

The Florida Constitution is another factor in why tax values will not correlate to current market values of homes. For example, if the sale occurred a long time ago, then the tax value might be lower than a recent similar sale, due to the Save Our Homes Amendment.

Portability allows homeowners to transfer their Save Our Homes tax benefits from their current home to a newly purchased home within any Florida county. Portability applies to homes purchased in 2007 and later, and the benefit is capped at $500,000.

The following video was created by the Leon County Property Appraiser to explain how taxes are determined (and how you can challenge them if you think they are too high):

[youtube]http://www.youtube.com/watch?v=OH1guWV_Mj8[/youtube]

 

Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.

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