Evaluating The Price of The Property

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HOW THE TAX ASSESSOR EVALUATES THE LAND AND ITS IMPROVEMENTS

A good place to start when determining the value of the land and its improvements is by checking the county Tax Assessor's records for the appraised market value. First you must know how current the appraisal is. Talk to a Tax Assessor to see how recently he has been to your area. Usually several assessors work in the office and you can ask to talk to the one who appraised the seller's land. He will tell you what he thinks it is worth, which is usually somewhat more than he appraises it for taxes. You can tell him what the seller's asking price is and get his opinion of it. You can also ask his opinion of any improvements on the land, their condition and value, independent of the land itself. He will take into consideration factors of depreciation and appreciation. The assessor will be familiar with prices of surrounding land and he can tell you what kind of prices land has been going for in your area. He will also know about developments being planned in the area and their possible effect on land values. This information is used in the most important and common of all appraisal techniques used by Tax Assessors and Land Appraisers, the Comparison Test.

THE COMPARISON TEST

A parcel of land is compared to other parcels in the area which have recently been sold to determine its current value on the market, often called the "fair market value." You must find out the purchase prices of two or three specific pieces of land nearby that have been sold recently and that are similar in size and major features to the land you are interested in. For instance, if you are looking at land along a creek, try to find out the price of creek land above and below your prospective place.

Since each parcel of land is unique, you must be careful in comparing prices. Any improvements and other features, such as buildings, orchards, ponds, and equipment, will raise the value of the property, so take these things into consideration. Two pieces of land that are basically similar except for the fact that one has a house on it and the other doesn't may be difficult to compare because of the added value of the house.

Where tax stamps are required on deeds, they can be used to find the purchase price of a piece of land. Prior to January 1, 1968, federal law required the placing of Internal Revenue Documentary Tax Stamps on every deed used to transfer property. Since that time many states have enforced their own tax stamp, or real property transfer tax, laws. If your state imposes a transfer tax, you can find out how the tax is computed from the county Recorder and look up the date of any land parcel to find out the purchase price from either the stamps affixed to it or the stated amount of taxes which were paid.

For example, under the old federal tax, 55¢ worth of tax stamps were required for every $500 or fraction thereof of the purchase price. Thus, property that sold for $19,850 would have $22 worth of documentary stamps on the deed. To figure out the sale price from the stamps, divide the amount of the stamps by 55¢ then multiply that quotient by $500. The basic procedure can be used to determine the selling price whenever taxes are required. However, you must use some caution when doing this, because buyers frequently include more stamps than required to make the property seem more valuable when they decide to sell it. Thus take as many different samplings as you can. After looking at recent selling prices of comparable land you will price land currently for sale. The more land you look at, the better idea you will have as to whether the land you like is priced high or low for the area. Ask other real estate agents who show you land if they are familiar with the land you are interested in. Tell them what the asking price is to see their reaction. Of course, you should not rely on their appraisal, but it will be interesting to hear what they say about it. When you compare the asking prices of other land for sale remember that asking prices are always inflated.

As you compare the price of similar parcels to the land you are interested in, try to determine if there is justification for any difference in price. If a large discrepancy exists with no justification that you can see, keep it in mind to bring up during the bargaining and negotiations with the seller when you are pointing out why the price is too high. If the seller bought the land within the past few years, try to find out the price he paid for it. You can simply ask him, although he may be reluctant to tell you, especially if he is making a large profit. You can look up his deed and determine the purchase price by the amount of transfer taxes paid or the number of tax stamps if they are required (remembering, always, that he might have put more stamps on than was necessary.) Also compare the Tax Assessor's appraised value of his land the year before he bought the property with its appraised value after he took title. The amount of increase reflects the amount he paid for it.

You should ask everyone familiar with the property his opinion of the reasonableness of the asking price. This includes the Building Inspector, Tax Assessor, other real estate agents, people living in the area, and the Farm Advisor.

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