Market Value Versus Assessed Value: Where Not to Look for Your Home’s True Worth

Maricopa County property tax valuation notices go out in another month or so, and the reverberation of a couple million jaws dropping will once again shake the Valley of the Sun. Whether a new homeowner’s first tax valuation experience or a case of seasonal amnesia in longer-tenured residents, many succumb to reverse sticker shock upon first glance at the meager value the county has assigned to his/her Scottsdale home.

“My house is worth WHAT?!!!

Rest assured, values have declined in the greater Scottsdale and Phoenix area, but the paltry figure on the wadded up piece of paper in the clenched fist of an aghast homeowner seldom represents an accurate indication of current market value. I repeat, the county’s assessed value does not represent the home’s current value.

Our property valuation schedules are a convoluted mess here in Scottsdale. Rather than a simple statement of what your property is worth and the taxes associated with it, your notice will reflect myriad seemingly incongruous figures. Limited values, full values, cash values, secondary values … and a partridge in a pear tree.  To simplify (somewhat), let’s just break the tax notice down to what really matters to you.

The Assessed Value of a home is derived by the following formula:

Full Cash Value x Assessed Value Ratio = Assessed Value

The Full Cash Value figure is the closest thing to a current market value determination by the county, and it represents the value of the land plus (supposedly) any and all improvements (structures) to the property. Bear in mind, however, that this figure is arrived at exclusively through public record search. No appraiser comes to your house to value recent improvements, verify square footage, etc. Unless permitted, that computerized formula for value assignment is unlikely to take into consideration your recent kitchen remodel, new hardwood flooring, plantation shutters, A/C, etc. I have encountered far too many discrepancies between the information found in the tax records and reality to take even the assessor’s rudimentary information with anything less than a periodic table-shattering grain of salt. Non-accounted for additions, wildly inaccurate square footages and omission of swimming pools are public record bugaboos that immediately come to mind as repeat offenders.

Once Full Cash Value is assigned, dubious as it may be, that figure is multiplied by the Assessed Value Ratio to arrive at the Assessed Value (the number that causes fainting spells across the Valley). For residential properties (with completed homes), the Assessed Value Ratio is 10%. For vacant parcels, it is 16%.

Once Assessed Value is determined through that formula, it is in turn multiplied by the current tax rate to determine the total taxes owed for the upcoming cycle. To further complicate matters, there is a primary and a secondary tax rate to consider, but we’ll save that stimulating bit of minutia for another day.

Maricopa County Property Tax FAQ

Confused yet? So is nearly every homeowner and buyer in Scottsdale. Let’s apply it to a real world scenario.

Take a residential property assigned a Full Cash Value of $300,000. For the sake of clarity, we’ll combine the primary and secondary tax rates at a not completely arbitrary 6.5% (roughly the combined rate for my tax district in 2010). Using the formula outlined above:

300000 x .10 = 30,000 x .065 = 1950

With total tax liability established at $1950, it is divided into semi-annual bills of $975. First half taxes are due on October 1st (delinquent on November 1), and second half taxes are due March 1st (delinquent on May 1) of the following year.

Mathematical gyrations aside, as that was not the original intent of this piece, my advice to homeowners and prospective homeowners alike is not to look to the tax rolls in pursuit of an authoritative decree of a property’s current worth. Even if you know which figures to look at, the full cash value determination is not the ultimate purpose of the assessment, and therefore renders its application to any one specific property an unreliable measure.

A system designed for county-wide revenue collection is not a great gauge of what Mr. and Mrs. Smith would be willing to pay for Mr. Jones’s house on 1/3/10.

If a specific property’s value is one needle in the market’s haystack, the assessor is using a forklift to find it.

Or, to satisfy my personal quota for no fewer than 2 gratuitous metaphors per post, the county assessor is stalking the nimble prey of current market value in a bazooka-wielding dump truck.

The tax rolls are full of good stuff that can be exploited in negotiation. Total lien encumbrances, dates and price of purchases, taxable square footage, zoning, parcel size, etc can all be utilized by a savvy consumer to secure the tactical advantage that accompanies such intelligence gathering. Just don’t look to this cumbersome evaluation method to derive your unshakable opinion of the property’s worth.

Recent comps, current competition, pending sales … this is how you triangulate current market value. Property tax assessments, online evaluation algorithms, Carnac impersonations … amusing broad stroke guesstimations, but nothing more than jumping off points.

Want to determine what a home is worth? Get an appraisal or contact a local Scottsdale Real Estate agent for an opinion of value via comparable market analysis.

Want to give yourself a stroke? Base your price expectations around the assessed value notice that hits your mailbox in February.

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    interesting article

About the author
Paul Slaybaugh is here to sell houses and chew bubble gum. He's all out of bubble gum. More About Me >>>
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