What is all this talk about Assessed Value and Appraised Value? What is the difference and what is Fair Market Value?

Today more and more, we are hearing many seller agents say their listed properties are priced "well below Assessed Value". What does that say about the listing price? Does that mean the listed price is a 'good deal' price? Is that the Fair Market Value? Absolutely not, and quite frankly the assessed (tax) value has little relevance when it comes to the actual market value of a property which can be below, at, or above the listing price.

The Assessed Value of a property is arrived at by a cursory unscientific look at properties in an area. Most of the time the Assessor does not actually visit the property, and if they do, 99% of the time they never set foot through the front door to inspect the interior (i.e. floor materials, appliances, fixtures, level of trim and finish, etc.). A home owner does not have to allow an Assessor inside to inspect their home. The Assessor gathers and tabulates as much information as possible about a property and then they use that for their valuation. Opinions on value are always based upon the subjective interpretation of the information available to the Assessor at the time of the assessment. Assessment information is usually 12-18 months behind the market which is one more reason the information cannot be used as a true barometer for current market value.

The Home Appraisal is much more thorough, detailed and timely. When preparing a Full Narrative Appraisal for a property the Appraiser will inspect the property inside and out and compare the subject property to as many comparable sales as possible. Since no two properties are the same, they will make specific adjustments for as many items as necessary. If too many adjustments have to be made then the comp is not a good one and it is removed from the equation. After the adjustments are made and values are established for each comparable, the numbers are averaged and a market value is established for the subject property. It sounds complicated and it is, but it is not scientific. Appraisal analysis is considered an art form and the opinions of the Appraiser are understood as being subjective, even though this is the most accurate method to establish market value we have today. Today Appraisers must be licensed and undergo continual and extensive training.

You will notice I did not say ‘Fair Market Value’. In appraisal analysis the correct term used today is ‘Market Value’. Okay, so what is Market Value? Market value is the price at which a buyer is ready and willing to buy and a seller is ready and willing to sell in an open market arm’s-length transaction between strangers. Both parties have reasonable knowledge of the property and are not under any compulsion to do business. This now rules out any form of distress sale as a way to establish market value.

Here on Martha’s Vineyard market value is heavily biased and distorted by emotion which creates ‘intrinsic value’. I have always said that if you as a buyer try to value a property according to the numbers, you will end up very frustrated because many sellers as well as buyers place an intrinsic value on properties based on their own preferences and circumstances. Quality of life creates an intrinsic value as does hearing the roar of the ocean or watching the sunsets from the comfort of your deck chair. I would have to say in general ‘Market Value’ on Martha’s Vineyard is intrinsic even though it is not the same for everyone. I believe making a purchase on Martha’s Vineyard is ultimately an emotional decision. My goal is to get you as close as possible to a fair deal price as possible and to make sure you know as many details about the property as possible. My responsibility is to protect you from as many unpleasant surprises as possible, but I cannot make the final decision as to whether the purchase you are making is a good deal. If you are making a fully informed decision that makes you feel good and is good for your family then you can say you are making a good deal.

New Requirements Regarding Failed Septic Systems

Within the last month legislation was passed mandating any lender financed property with a failed Septic System to have the repair installation completed prior to any closing of a purchase transaction. Prior to this legislation transactions could close as long as money was held in escrow (usually 1.5 times the estimated cost) and the system would be installed post closing. Lenders are now prohibited from closing a transaction with a failed system. This is going to lead to a lot of delayed closings. Title 5 inspections are usually not completed until just a week or two before closing. Cash deals are not subject to this requirement.