What’s my house worth?

This time of the year most Realtors are getting calls from homeowners interested in finding an answer to that question. Mostly they are trying to see if it makes sense to fight their recent assessments. Some are trying to see if they might have enough equity in the house to be able to re-finance. And for some it’s just morbid curiosity about how bad of a hit that have taken in this market. There’s also lots of confusion about terms like “market value”, “assessed value”, “taxable value”, “appraised value” and others. The recently received 2009 notifications of changes to the Assessed Value or State Equalized Value (SEV) and the Taxable Value can be confusing.

The Headley Amendment to the Michigan Tax Code has had some unintended and confusing consequences. The Assessed Value or SEV that the Township reports is what their assessor says your home is worth from a tax assessment point of view. Assessors tend to look at the overall neighborhood and to look at things from a replacement cost point of view. Those views tend to hold values up during short-term economic downturns, like what we are in right now; although, even the assessors have had to start lowering values, based upon whole neighborhoods declining in value. Initially assessors didn’t include foreclosed houses that had sold in their calculations, but now they do.

How the Assessed Value and the Taxable Value of a house can get out of hand is a quirk of the Headley Amendment, which allows Assessed Value to float up quickly with the market, but restricts Taxable Value increases to a maximum of 5% per year. In theory the SEV can also float down with the market and when it goes below the Taxable Value the homeowner has a case to make with the local taxing authority for lower taxes. So look at your assessment notice. If your Taxable Value is still lower than your SEV, you really won’t have a case for tax relief. If your SEV and Taxable Value were in sync already both should have gone down this year, given what’s happened in literally every market locally. If your Taxable Value didn’t follow your SEV down, then you’ve got a case to make.

Other “values” that you might hear about are the “appraised value” and the “market value.” The appraised value is usually associated with financing a mortgage and is a reflection of what the bank thinks your property is worth. That drive how much they will lend on it. In the current market that is likely to be a lower number than you’d like, because the banks have to bake in some risk for further value erosion, due to the economy. Banks hire professional appraisers for that task and they do detailed comparisons of your home to homes within a reasonable distance that have sold within the last 3-6 months (they can go out a year if they have to, but they really don’t like to go that far back). Appraisers have to be aware of the market conditions and things such as the foreclosed houses in the neighborhood (sold and on the market), but their methodology is more precise in comparing features and making judgment calls upon the value content of differences between homes.

Finally there is the “market value”, which might be what a market analysis by a Realtor would return to you. I do 5-6 of those a week for people who may be looking to sell their home and are interested in finding out what they would be “worth” on the current market. The best definition that I’ve ever heard for market value is that your house is worth exactly what someone else is willing to pay for it. That’s true. But, what you want when you ask for a market analysis is some idea what that number might be. By the way, that number these days may not be enough to pay off your current mortgage or it may be more than lenders are willing to loan on the house – I’ve had both cases a lot lately, sometimes both at once.

A Realtor doing a Market Analysis (sometimes called a Comparative Market Analysis or Competitive Market Analysis, both shorted to CMA) will look at not only what has sold in the last 3-6 months in your area, but also what is the active competition on the market. He or she will try to find “comps” – comparable homes – to use for the analysis. I prefer to use the work similar homes, because I have seldom been in all of the homes that I might use for the analysis, so making comparisons without seeing them is hard. What I do focus upon is that they have generally the same features and content – number of baths and bedrooms, square footage, garage spaces, basements (and whether they are finished or not), style (ranch, colonial, contemporary), land content, etc. If the home that I’m trying to provide an analysis for is on water, then I have to find other water-oriented homes for the analysis. As I’ve opined here before, really unique houses can be very difficult to analyze for market value, because there are likely no comps.

So, what is your home worth? It depends upon who’s doing the analysis and for what purpose. I can give you a good idea what a good market price for it might be, but you’ll need an appraiser to tell you what it might be worth to a bank and your Township assessor is still gong to have his/her on idea of its worth for tax purposes. So, if you need to know or just want to know what your home may be worth to someone else, give me a call. Just don't shot the messenger, when I tell you what it's worth on today's market.