Why Assessments Don’t Go Down

Posted By Cliff Tuttle | June 2, 2009

Posted by Cliff Tuttle, (c) 2009

I have recently read some speculation why the surplus of properties for sale, many of which go unsold for years, has not driven assessments downward.

There are multiple factors that create a floor for real estate prices, but the most important is the balance on the mortgage.  Few sellers can afford to bring much money to a closing.  If the market value is lower than the mortgage balance, the asking price usually does not fall below the payoff amount.  Thus, instead of selling at the true fair market value, a property simply doesn’t sell or is taken off the market.

In desperation, a few sellers who cannot wait will try to engineer a short sale.  These are hard to do because the lender will typically refuse to consent until the final number is known. This makes short sales a rare commodity, even today.

Sheriff sale bid prices are usually not considered to be indicators of fair market value.  Thus, these lowball sales (hundreds of them every month) are excluded from the pool of sales that appraisers consider.  Yet each of them represents a sale — one where the seller in effect agrees to sell the property for the equivalent of the mortgage debt. This is not to say that these numbers should be considered.  There is no willing seller and buyer making voluntary decisions.  Yet a large number of properties happen to be transferred at far below the fair market value in this fashion.

A good indicator of true fair market value is the prices foreclosure properties yield when they are resold by lenders to liquidate their investment.  Unlike most owners, banks and other lenders can afford to sell a property at fair market value, even when this price has fallen far below the prior sales price or mortgage amount.  Thus, a property in a bad neighborhood with no takers can eventually sell for a fraction of the prior mortgage.  Yet, appraisers are likely to reject these prices as too low to reflect fair market value. Unfortunately, they are too often the best indicator of the true market value of properties in poor condition.

On the other hand, nominal sales prices have been increased across the board by the phenomenon known as “seller assist.”  The seller gives the buyer a credit of several thousand dollars toward closing costs.  This raises the reported sales price and thus the assessment value.

Of course, all this should not affect the base year system used in Allegheny County and other Pennsylvania counties.  Or does it?  The 2002 reassessment, based on actual sales data, contained the bias described above. The fact that some properties have lost value since 2002 while others gained, only makes the situation worse.

CLT

Welcome

CLIFF TUTTLE has been a Pennsylvania lawyer for over 45 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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