Property Tax Assessments and Fair Market Value

In the first quarter of the year, most jurisdictions send out the property tax assessment for the coming year. In fact, Fairfax County, Virginia where I live distributed the assessments recently. One can go online to find out more information at the Fairfax County government site: http://www.fairfaxcounty.gov/dta/real-estate-assessments.htm

A question I often hear as a professional real estate agent: Is the tax assessment fair market value? Sellers typically want their property tax assessment to be low so that their taxes are low, so they almost always feel that their home is worth more than the tax assessment indicates. Buyers typically don’t want to pay more than the property tax assessment because they feel that if the jurisdiction the real estate is in has determined a certain value, then they shouldn’t pay more for a property than that amount.

According to Dictionary.com, the definition of assessment is: An official valuation of property for the purpose of levying a tax; an assigned value.   True fair market value of any commodity (real estate included) is arrived at when a buyer and seller agree to a price with specific terms and consummate the transaction; neither party is under duress, the parties are unrelated and thus at an “arms length”; the commodity has had adequate exposure to the open market and financing terms are typical. So the technical answer is the property tax assessment is not fair market value. However, as is so often the case, the answer is more complicated than a simple yes or no.

The Virginia Constitution requires that real estate be assessed at fair market value.   On the Fairfax County website it states that the tax assessment is obtained by looking at values in the neighborhood and is in a way of mass estimating. The more homogeneous a neighborhood is and the more stable the market conditions, the closer the assessment will likely be to fair market value. If prices are rising, the assessment is usually below the market and if prices are falling, the assessment is typically above the market. This delayed reaction occurs with assessments because the process requires the assessor to look in the past and fair market value occurs in the present, in real time.

Fairfax County utilizes actual sales that occurred in the previous year for the neighborhood in order to estimate the assessment for a particular property. Neighborhood is loosely interpreted by Fairfax County as the entire zip code. Like properties are considered, for example, condos will be mass compared to other condos, townhouses with townhouses and detached homes of similar size and acreage will be compared to like homes. On the website it states, “Given the size, complexity and diversity of properties within Fairfax County, fair market value is deemed to be reasonably estimated if assessments at the neighborhood level generally average in the low to mid 90’s percent range when compared to sales prices.” So in other words, the tax assessment in Fairfax County is typically 90% of the previous year’s fair market value.

Often times the tax record does not accurately reflect features and improvements of a property. It is the responsibility of each home owner to notify the assessment authority if there are any discrepancies in the record. It has been my experience, however, that home owners are reluctant to advise the assessment office of inaccuracies because if the evaluation of their home rises, the property taxes will increase as well.

Should you or someone you know desire guidance from a professional Realtor®, please visit our website for more information at: www.HBCRealtyGroup.com. Karen Briscoe and Lizzy Conroy are active and experienced Realtors® in the Northern Virginia, Washington DC and Maryland market place and would be delighted to assist whether for home buying or selling. Please contact via the means most convenient for you: 703-734-0192, Homes@HBCRealtyGroup.com