If you are in the market to buy or sell Outer Banks Real Estate, it is important to understand the value of your property. To determine this, one must consider the differences between tax assessment, appraisal value and fair market value.
Understanding Tax Assessment
Governments use tax assessed value, or TAV, to determine a property tax rate. Many states assess homes at 80-90%; however, all North Carolina homes, including Outer Banks vacation homes, are assessed at 100% of fair market value by law.
With this in mind, many buyers and sellers assume that the tax-assessed value of a home must be the same as fair market value, but this is not always the case. This is because local governments usually assess properties on a recurring basis. This may be every 2-3 years, but North Carolina law allows a span of no more than eight years between assessments.
We know that markets can and do change often. Just consider average home price in 2005, as compared to worth after the economic crisis of 2006. The value of most American’s homes went down during this period. This type of change is one reason why consumers should never determine a home’s value by its tax assessment.
Appraisal Value
So you may be thinking, if I can’t depend on tax assessment to determine value, should I focus on a home appraisal? The answer to this question is yes, and no.
While a mortgage lender will write a loan on a home for the appraisal amount, they do not always take upgrades and the “feel” of a home into account. Location is the prime factor in appraising a property, particularly in Outer Banks real estate, since proximity to the ocean and sound are such large factors.
Other than location, appraisers are usually focused on the following to determine home worth:
- Square footage
- Condition and age of the home
- Lot size
- Number of bedrooms
- Number of bathrooms
- Total number of rooms
- Garage(s)
- Decks
- Screened porches
- Fireplaces
There are other bells and whistles appraisers may factor in, such as hardwood floors and crown molding, but their impact on home value is marginal. Although these improvements do help the home sell, they do not impact the appraisal significantly. And believe it or not, many appraisers never even enter the home they are appraising.
It should be noted that while upgrades may not affect your appraisal value very much, that is not to say they are not worthwhile. Often, they will help sell your home quickly. For example, eye-catching landscaping will lure people in to look at the home, because 80% of homebuyers decide if they like a house when they first drive up to the property.
Fair Market Value
Now that we have covered tax assessed value and appraisal value, let’s consider fair market value, or FMV. This is the price a home should sell for under “normal” market conditions. “Normal” is a subjective term, but it generally means that the local housing market is not in distress due to a large number of foreclosures or a recent natural disaster like an earthquake or hurricane. FMV is usually determined by comparing the property to similar properties within a small radius, and is based upon what price these similar homes sold for within the past year or two.
If you purchased your home below FMV due to a short sale or foreclosure, then the amount you paid is not considered FMV. Assessment in these scenarios will be determined based on what the price would have been under normal sales conditions.
How to Ultimately Determine the Value of a Property
When buying or selling a property, it is a good idea to consider all valuation methods. All Realtors should understand fair market value, and will most likely use this method to aid you in determining an asking or offer price.
With this being said, most Realtors know that each property is ultimately worth whatever a buyer is willing to pay for it. For example, an Outer Banks home for sale may have a tax assessment of $925,000, an appraisal value of $950,000, and a fair market value of $975,000. That may seem simple enough, but when faced with a bidding war, for example, you never know what a buyer will go up to. And after years of monitoring Outer Banks homes for sale, we understand that anything can happen!