Tag Archives: property taxes

Real Estate Transfer Tax: Fact or Fiction?

Plenty of rumors were spread during the election. Now that the dust has settled, we can start separating what was fact from what was fiction. One rumor in particular had myself and fellow Realtors concerned, the rumor of a 3.8% real estate transfer tax included in the Obamacare bill going into effect on January 1, 2013. If true, this would indeed affect many people. Fortunately, it is has been completely misunderstood and will not impact 97% of real estate transactions. In fact, it is wrong to call it a real estate transfer tax. It is a capital gains tax.

This video from the National Association of Realtors, addresses some of the rumors and explains how and when this tax will come into play.

Here are the basic facts:

  •  The new 3.8% tax increase is to help Medicare and goes into the Social Security Trust.
  • The tax only applies to individuals that makes over $200,000 a year or couples that make over $250,000 a year.
  • Sales of primary residences can still take advantage of the $500,000 capital gains exclusion, but the tax will apply to anything above that cap.
  • Any capital gains on non-primary residences (investment properties, second homes, ect.) will be subject to the tax if the owner’s income exceeds the limits previously mentioned.

Working in a bustling city, many of my clients own investment properties and pied-à-terres throughout the downtown neighborhoods. If you feel you will be affected by this new tax, please consult a tax or financial consultant to learn exactly how.

Posted in Investment Property, Real Estate Tips, Real Estate Transactions, Sell property | Tagged , , , , , , , , | Leave a comment

Assessed Value vs Market Value

“Why is the assessed value vs market value so far off for this property?”

Many buyers have asked this question thinking a ratio of assessed value offers a shortcut to a property’s fair market value. While I use and can suggest many factors and figures to determine a property’s fair market value, I do not ever look at the assessed value when pricing a property. In fact, the only time I consider a property’s assessed value is when I want to provide buyers with the figure they will pay for property taxes.

The fair market value is the price agreed upon between a willing and informed buyer and a willing and informed seller under usual and ordinary circumstances (not under duress). The fair market value is the highest estimated price in terms of money which the property will bring if exposed for sale on the open market with reasonable time allowed to find a buyer who is purchasing with full knowledge of all the uses and purposes to which the property is best suited and for which it can be legally used.

Market Value vs Assessed ValueIn contrast, the assessed value is the dollar value assigned to a property by a public tax assessor for the purposes of measuring applicable taxes. Some states require assessed value to be a percentage of the real market value, but most do not. In Massachusetts, Town Assessors are required to submit assessed values to the State Department of Revenue for certification every three years. Assessors review the real estate sales market data every year and therefore reassess values each year. Many states do not allow the assessment value to be increased unless the home is sold or improvements are done to the home (called Proposition 13 protection in California). If market value falls below assessed value, the home owner may petition the tax collector for an abatement.

Since fair market value and assessed value differ in purpose and in how they are determined, an analysis of assessed value vs market value does not provide a consistent ratio from which to judge the merits of one metric or the other. After charting the two values looking for a correlation, the results show assessed values are all over the place in relation to a property’s fair market value.

I suggest using better methods of gauging a listing price’s merit in the current market. A comparable market analysis (CMA) is the best method for determining probable price of a property, but even price per square foot or the ratio of sale price to list price can be used as quick metrics of a list price’s validity in today’s market. Our Realtors are available to provide you with a CMA if you are considering buying property or thinking about listing your home for sale.

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Posted in Buy Property, Condo, House, Property for Sale, Real Estate Sales Market, Real Estate Tips, Sell property | Tagged , , , , , , , , | Leave a comment