Today I’m answering your question, “What does assessed value mean?” and the topics I’m going to cover are:
- Assessed Value and Tax Defaulted Property
- What Is Assessed Value?
- The Importance of Understanding Assessed Value
- Assessed Value vs Market Value
- Market Value in Real Estate
- Profiting From Real Estate Sold Below the Assessed Value
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Assessed Value and Tax Defaulted Property
I’m Ted Thomas, and I’m not a tax assessor, real estate appraiser or real estate broker. I’m trying to give you some insight from my experience. My experience over the past 30 years has been as an investor and author, and my specialty is distressed real estate, specifically tax lien certificates and tax defaulted property.
First let’s be clear on what tax defaulted real estate is. Traditional real estate is considered by most as homes, apartments, farms, small office buildings and vacant lots.
The same properties are included in the tax defaulted real estate market.
Over 3,000 counties across the United States will have tax defaulted properties, which the counties acquired because the owners failed to pay property tax.
Property value is critical when it comes to buying and selling real estate, and the assessed value can be very controversial.
This is also an area that creates great confusion. I’m going to clear this up and also show you why knowing the answer to the question, what does assessed value mean? is so crucial to real estate investors.
What Is Assessed Value?
What does assessed value mean? I realize I’m not giving you the Webster’s or Black’s Law dictionary definition, however, my answer is the assessed value is used for determining property tax. This is known as an ad valorem tax, and the government assessor is responsible for assigning this value.
When the tax collector assigns value to real estate for property tax purposes, this is done by taking into account many different factors. For example, comparable properties in the area take into account the fair market value of other properties, and in many instances, they take in what they consider the market value.
I’m not giving you legal advice, but I can tell you a government assessor is responsible for the assessment value when it comes to property taxes.
From experience, I have learned that the tax assessed value is determined by many assessors as a percentage of the fair market value. Notice I said a percentage, not the whole. That’s a big deal which I will explain.
The Importance of Understanding Assessed Value
I’m in the business of purchasing government tax defaulted real estate at auction to turn a profit. What does assessed value mean to a tax defaulted property investor? I’m going to show you how it means big profits.
In the tax defaulted real estate business, in all counties, the government will notice properties for auction and place a tax assessed value on that property. This is important.
The challenge is, how did the assessor determine the value? In some instances, the assessor may visit the property personally. Did they assess comparable square footage, look at local values, or compare recent sales? It’s a question mark.
Earlier I mentioned they use a percentage of the market value. That leads me to believe they’re using a percentage less than the market value. This is important information if you’re buying at a tax auction because each property will have a tax assessed value. So assume they’re assessing at a percentage of market value.
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Assessed Value vs Market Value
What does assessed value mean vs other values? If the stated market value is one number, the assessed value another number and the appraised value is yet another one, don’t be surprised.
My point is that the assessed value could be significantly different from the market value.
From my experience, at all property auctions where they’re selling the actual property, the county will state the assessed value of the property and attach that to any announcements or materials used to sell the property – for example, an auction list, a notice in the newspaper, or a notice on the website.
This is powerful information because the average purchaser does not understand that there is an assessed value for tax purposes only and a market value which properties might be selling for and an appraised value which would be required by lending institutions.
It’s easy to get confused, however, knowing what you know is to your advantage.
Market Value in Real Estate
Opportunity seekers like what they learn when it comes to tax defaulted real estate because in most cases, the county is auctioning property with starting bids of just the back taxes which are considerably lower than the tax assessed value.
Meanwhile, the market value can be considerably different.
Market value takes into account many variables, like curb appeal, energy efficiently, location, utilities, and square footage. I hope you’re seeing the differences.
What does assessed value mean? It means a savvy buyer who understands the vocabulary of values could see a large profit between the assessed value, the asking price, and the market value.
Add to that a system that’s created and managed by the counties to place defaulted properties up for auction usually at a price much less than the assessed value, and you have the best of both worlds for an entrepreneur.
Profiting From Real Estate Sold Below the Assessed Value
It is not unusual for a treasurer at a tax defaulted auction to offer a starting bid of only the delinquent back taxes as the first bid. That low price could be 60%, 70%, or 80% below the tax assessed value.
Potentially, the bidder could be purchasing for 10 or 20 cents on the dollar.
For example, in California one of my clients purchased a buildable vacant residential lot in a nice neighborhood that was assessed for $229,000. The purchase price was only 15% of $229,000.
By using a buy low and sell low strategy, the investor sold the property quickly for a $20,000 profit, and the new buyer was overwhelmed with excitement.
Some of you may be saying to yourself, $20,000? That’s not a big deal. So let me add that the property was in California, and the bidder purchased it online sitting in his basement office in Regina, Saskatchewan, Canada. He made $20,000 sitting in his basement office. Would that work for you?
We hope you enjoyed Ted’s lesson, “What Does Assessed Value Mean?”
Assessed value is calculated by the assessor to determine the amount of property tax, and the assessed value is often only a percentage of the property’s market value.
Now take into account that at a tax defaulted auction, if the bidding begins at the back taxes, which are a small percentage of the assessed value, and the assessed value is a percentage of the market value, how amazing the profit potential of buying and selling tax defaulted property can be!
If you’d like to know more about tax delinquent property investing, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.
Learn how to reap huge rewards from tax lien and tax deed investing! Get started today by taking advantage of Ted’s Free Master Class! Act now, it costs you nothing and will give you a big head start!
Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions, as well as a publisher and author of more than 30 books. His guidebooks on Real Estate have sold in four corners of the world. He has been teaching people just like you for over 30 years how to buy houses in good neighborhoods for pennies on the dollar. He teaches how to create wealth with minimum risk and easy-to-learn methods.
Ted Thomas is not an attorney, a CPA or an appraiser.