Sellers frequently ask me to assist them with pricing their land for sale. After I spend 30-45 minutes on my research, thoughtfully considering price from every angle, the seller will sometimes say: “But my tax-assessed value is a different number.”
Um, and that’s important why?
It’s almost like some land owners believe the tax-assessed value is some officially correct number, the TRUE value of their land, handed down from on high by the trusted GOVERNMENT. They think that if a Realtor gives them a different number then it is the Realtor who got it wrong.
This attitude frustrates me every time.
So today I want to do a little research for you. We’ll look systematically at whether there is any relationship between government-issued tax-assessed values and selling prices. Let’s just see if the taxman can help you price your land for sale or not, shall we?
Method
I extracted data from the MLS – specifically I gathered sales prices from the California Regional Multiple Listing Service (CRMLS) and 2016 tax-assessed values from Realist.
In the MLS, I identified land parcels that sold between 9/13/16 and 9/16/16. Because I was interested in vacant land, I excluded listings that described structures such as barns or houses or where build-to-suit was included in the selling price. I also excluded listings offering two or more parcels. Finally, I omitted listings with incorrect parcel numbers (APNs). My sample consisted of the first 50 listings that met these criteria.
Tax-Assessed Value vs. Selling Price
Below is a scatterplot of all 50 vacant land parcels that sold. Tax-assessed value is plotted on the horizontal x-axis and selling price on the vertical y-axis. Examine any point and you will see that they are generally two different numbers.
Due to the many points clustered in the low price range, the pattern there is difficult to see. So in this next figure I show just those sales where the tax-assessed value is under $50,000:
If tax-assessed value and selling price were the same then all sales would fall neatly on the white line. However, as you can see, the orange points do not fall on the white line – some are below the line and some are above.
Below the line are parcels where the tax-assessed value is higher then the selling price.
Above the line are parcels where the selling price is higher then the tax-assessed value.
- Consider Parcel A for example. This parcel had a 2016 tax-assessed value of $40,600 and yet sold for substantially more at $100,000.
- Similarly, Parcel B had a tax-assessed value of $12,733 but sold for over four times that at $54,000.
- On the other hand, Parcel C had a tax-assessed value of $47,092 yet sold for a lower price of $37,500.
Don’t Leave Money on the Table
Let’s do a thought experiment. Imagine a world where all 50 of these sellers had priced their land at the tax-assessed value.
What would have happened?
The sellers who should have priced their land at more than the assessed value would probably sell their land quickly in this imaginary world. However, compared to the price they could have gotten, they would leave money on the table. How much money would they lose? The loss can be calculated as the difference between the tax-assessed value and the selling price. Collectively, for these 50 sellers the loss would have been $3,308,249.
Don’t Waste Time
But wait, in our thought experiment, what about the sellers who priced their land under the tax-assessed value. What if they had priced it right at the assessed value instead? What would have happened to them?
The answer is, those parcels would still be on the market today, unsold.
How do I know?
I went back and looked at the average “days on market” (DOM) for those parcels and discovered it was 129 days.
So it’s not like these parcels flew off the market in a day, a week, or a month just because they were priced at less than the tax-assessed value. Those sellers were not “giving them away”. Apparently buyers were not lining up to purchase these particular parcels.
Due to their unique, and possibly undesirable, characteristics, these parcels were actually priced correctly at less than tax-assessed value and still took an average of over four months to sell. If they had been priced incorrectly, higher, right at tax-assessed value, they probably would not have sold at all and they’d still be on the market today as I write this one month later.
My Last Three Sales
Finally, I looked at my own sales at Land22 Real Estate to see if I could find any relationship. I did not cherry pick these examples for dramatic effect, I just chose the last three sales:
- 334+ acres, 6 parcels, in Clearlake Oaks, Lake County, were priced at $325,000 combined. There were two offers so these parcels sold for over the asking price at $330,000 after 132 days on market. The 2016 tax-assessed value for all six parcels combined was lower at $161,800.
- 19 acres in Moreno Valley, Riverside County, was priced at $60,000. It sold for $50,000 after 289 days on market. The 2016 tax-assessed value was higher at $65,419. This parcel had legal, but strange, access and a neighbor had posted huge “no trespassing” signs, affecting value. Just one example of something the tax assessor might not be aware of.
- 1 acre in Topanga Canyon, Los Angeles County, was priced at $179,000. It sold for $130,000 after 309 days on market. The 2016 tax-assessed value was lower at $31,349.
Conclusion
There is little relationship between tax-assessed value and actual selling prices for vacant land. Compared to the government tax assessor, your Realtor will do a far better job helping you take into account the specific characteristics of your particular parcel, the current real estate market, available listings that you are competing with and other factors when assisting you in pricing your land for sale. When pricing vacant land, it is unwise to base your list price on tax-assessed value.