Land Value Sales Price vs. Assessed Value
The Assessor reports assessed valuations as a function of land value and improvement value. While assessing properties is no easy task, the land value side of the equation appears to be particularly problematic for the Assessor.
We looked at the prices of 51 land sales as reported in Costar in Cook County (all 2017 sales) compared to the total assessed value for the property by the Assessor in that year. Our study found that on average, the assessed value was 65% below the actual purchase price of the property. The Assessor had only 14% of the sales within 30% (either above or below) of the actual purchase price of the sales utilized in our analysis.
As appraisers, we periodically hear of building owners, buyers or bankers who rely on the assessed value as an indication of what they should buy, sell, or collateralize a property for. We have also seen out-of-state appraisers use the assessed property values as the basis for land value estimates.
It is important to note that the overwhelming number of the sales in our analysis were in Chicago and we are toward the end of the reassessment triennial with the potential for property appreciation since the last assessment. We also only made a cursory investigation into the sales to verify them as arm’s-length transactions. Our data implies the Assessor is furthest off in the highest value areas. They appear to sometimes have difficulty distinguishing the value of a property where there may be improvements on the site which do not reflect their highest and best use and assess the property based upon the existing building use which may not support the underlying land value.
Regardless, however, third parties would be wise to avoid using the Assessor’s land value in business decisions relating to a potential acquisition, sale or as collateral for a property.