The Mystery of Assessed Value (LA 1495)
The Mystery of Assessed Value (LA 1495)
Transcript:
Steven Butala:
Steve and Jill here.
Jill DeWit:
Hello.
Steven Butala:
Welcome to the Land Academy Show, entertaining land investment talk. I’m Steven Jack Butala.
Jill DeWit:
And I’m Jill DeWit broadcasting from sweet Scottsdale, Arizona.
Steven Butala:
Today, Jill and I talk about the mystery of assessed value.
Jill DeWit:
God, this comes up often.
Steven Butala:
Yes. Why do you think it comes up so often?
Jill DeWit:
It’s a thing. Well, because people need to have some way to value property. And when they’re doing pricing and they’re buying and they’re selling, right. So we often go, “Well, what does the assessor say? Where can I find some numbers?” And the number that jumps up first, it’s like, “I’m staring at it. I’m staring at the data. It’s the assessed value.” So that must be real, right? So it’s always real, right?
Steven Butala:
I’ll tell you what I think about this in a minute.
Jill DeWit:
Oh okay. Thank you.
Steven Butala:
Before we get into it, let’s take a question posted by one of our members on the landinvestors.com online community. It’s free, and if you’re already a member, please join us on discord. It’s an amazing tool. And I get a lot of our questions, like the question that Jill’s about to read, from landinvestors.com. And I see older, seasoned, amazingly successful members, piping in hard on landinvestors.com, but not discord. And I’m about to call him myself.
Jill DeWit:
What does that mean?
Steven Butala:
There’s some older established people that have been with us for five years that don’t know about discord.
Jill DeWit:
Oh, okay. You’re about beating that dead horse now, by the way. So I think we got it.
Steven Butala:
This is such an invaluable tool.
Jill DeWit:
Okay, thanks. Jason wrote, “I have a deal that I have a seller willing to sell and a buyer ready to buy.” Nice. “The buyer wants to go through title of his expense. My first thought is to do a notary close, get the land deeded to me and record it. And then…”, Sorry, I lost the question.
Steven Butala:
Oh, I’m sorry.
Jill DeWit:
You’re fine.
Steven Butala:
That was my fault.
Jill DeWit:
You got it. “And then go to the title company with the deed in hand and then sell to the buyer.” I get it, and do title insurance then. That’s what Jason’s talking about. “So I disclosed this to the seller and he says, he’s an investigator. And he asked…”
Steven Butala:
He’s an investor.
Jill DeWit:
Oh, excuse me. Anyway, “…and he asked, ‘Well, why don’t I just assign the contract and then collect the assignment fee versus the double close?’ I don’t know why not, so, I wanted to ask the group. We all live in a different city across Texas. So I don’t know if the assignment may be too messy for the seller, that I’ve already said I would just send a check for the notary close. Pros versus cons on the double close versus the assignment.” So I’m going to go first, sir.
Steven Butala:
Actually, you can just go.
Jill DeWit:
You know what’s funny? This has come up a couple of times in Clubhouse.
Steven Butala:
Jill loves Clubhouse.
Jill DeWit:
I do, just as much as you love discord. And it’s interesting, but anyway,
Steven Butala:
Jill has her new baby and it’s called Clubhouse. And she feeds it and pays tons of attention..
Jill DeWit:
So do you, Mr… Yes. Anyway, it’s not about me right now. So this has come up because a lot of people do this successfully. And it’s kind of like it’s given the wholesaling term a bad name. So you’ve got to be real careful here. So let me back up and just explain. So there’s a couple ways to do this. So you bought a property, you’re under contract, whatever it is to buy it, and you start shopping it around to some of your buyers and you find out, “Yeah, I want to buy it.” And you’re like, “Huh, okay, wait a minute. He’s ready to go. And the seller’s ready to go. I can just take a piece in the middle.” That’s what he’s talking about doing an assignment and walk away, or, “I own it. My name’s on the deed, even though it’s only on there for five minutes. Why don’t I hand it over and sell it to the guy?” You just got to be careful cause you don’t want to lose the deal and you don’t want to lose the seller.
Jill DeWit:
You know, I really like the first thing that Jason…is it Jason?…that Jason set up, which is, “I’m going to take ownership of it. My name’s on the deed. I’m putting my money where my mouth is. If anything goes sideways, my seller’s going to get the money no matter what. I’m committed to buying it from him at this price.”
Steven Butala:
And control the deal that way.
Jill DeWit:
Mm-hmm (affirmative). No one can take it from me. We’re not talking about the sale right now. Cause that’s not the thing for the seller. And it’s kind of a bummer when you are the seller. You’re like, “Wait a minute, you already found somebody and you’re making 20 grand right now? Why am I even talking to you? Why wouldn’t I just go to that guy? And by the way, I’ve got the guy’s name because now we’re all talking. We’re all in escrow.” And it could leave a little bit of a bad taste and a bad feeling and they could talk and exclude you. And the only thing you have is like, you can jump up and down and hire a lawyer, but are you really going to do that? I’m not going to, I’m just going to walk away.
Steven Butala:
It gets everybody thinking. If this is such a great deal and it’s a great piece of real estate and it’s all legit, then why are we structuring it this way, where this person’s not buying, it’s just getting in the way. Now you start to approach real estate agent status, where you’re just getting in the middle of a deal. You’re taking a fee. Usually it’s way too much and you’re making a mess. And my question is, I have a few questions. My first question is how did you get a buyer on this? I know how you get sellers. We all do that. That’s what we do for a living. But getting buyers is different. It’s a marketing process and you have to put a sign on the property or call some people that own properties around those.
Jill DeWit:
Or post it.
Steven Butala:
Right. So… [crosstalk 00:05:39].
Jill DeWit:
You’ve got to be more careful.
Steven Butala:
So Jill’s answer’s a hundred percent correct, but it’s the social/sales answer. I’m going to give you the technical answer. You don’t really have equitable title in this property. Equitable title doesn’t mean necessarily that you own it, but it means you have an interest in it. Some people will argue, “Well, I have a signed purchase. I have an equitable title.” I would not argue that. But some people will. And I’m not sure about Texas. Texas statutes would probably answer that for you. But if it’s a good deal, Jill and I have been saying this for years and years and years on the show, why would you structure a deal like this?
Steven Butala:
Here’s why. You don’t have the money. You don’t have the money to close the deal. If you don’t have the money, which everybody’s been there, Jill and I have been there. We have incredibly successful people in our group that ran out of money a couple of months ago and came to us and said, “We need $85,000 to close this quarter of a million dollar property. Will you guys fund it?” And we didn’t hesitate and said absolutely. I completely understand. So not having a lot of extra money to invest in real estate doesn’t mean you’re a bad person. It means that you’re thinking about it. It’s all good, actually.
Jill DeWit:
You’re doing everything right. You placed all the money.
Steven Butala:
Exactly. Or you just started and you got some serious fire in your belly and you want to be a real estate investor. You just don’t have the cash. There’s no shame in that at all. None. There is some shame in kind of snaking your way through a deal like this, which is called optioning. So call somebody in our group. Maybe us. If it’s a great deal, we’ll close the deal with you. And then you can go sell it to your buyer and we’ll help you get the deal done, not get in the way, which is kind of what I think is happening here.
Jill DeWit:
I don’t think that’s the truth, honestly. I don’t think agents can sort of get in the way, but you have to be careful that you can’t be construed like that and rub somebody the wrong way and get yourself in trouble. Cause that’s the thing. If you’re representing somebody, now you need to be a licensed agent. When you’re really buying it and you’re holding the title in your hand, now you’re an owner. It’s a whole different thing.
Steven Butala:
Puts you in a different legal category entirely.
Jill DeWit:
Exactly. That’s kind of how we roll. My whole point of this thing is how are you going to roll? How are you going to function in this career? And I really prefer to be overly cautious, maybe more by the book and then no one ever can say anything like I did anything wrong.
Steven Butala:
I could kiss you for that.
Jill DeWit:
Thank you.
Steven Butala:
I completely agree with you, Jill. And this is decades of experience in this talking. And it’s not just real estate. It’s everything. I’m not saying be a total full-blown rule follower, cause that’s probably not going to get you anywhere either. Just be fair.
Jill DeWit:
Do the right thing.
Steven Butala:
Do the right thing and be fair. And you have an option here. You can close this deal this way, or you can take the longer, higher road, and probably a little bit less profitable, but who knows? Might be more profitable in the end. We started down this path years and years ago. I’ve probably did two or three deals like this, Jill and I together, and decided it wasn’t for us.
Jill DeWit:
Oh, like options?
Steven Butala:
Yeah. But in the end we…
Jill DeWit:
The difference with an option, too, is we were very vocal and loud about it. I’m going to go market this property. You sign it that way. So everybody knows what’s going on. Yeah.
Steven Butala:
So I mean, Jason, you asked for the pros and cons of a double close versus an assignment, which is really the same thing. And so I am giving you probably more cons than pros. You’re not doing anything wrong here. I personally would close the deal a little bit differently. That’s it.
Jill DeWit:
And if you need the money, we’re right here.
Steven Butala:
At least you have a deal. Yep. So you won there.
Jill DeWit:
Yep.
Steven Butala:
Today’s topic: the mystery of assessed value. This is why you’re listening.
Jill DeWit:
This is the whole point of deal funding. So much of what we do happens this fast. It’s like, “Hey, I just need the money. I know what’s going to happen. I got this guy over here, barking at me to get a property like this. I need to buy it real quick and then I can try and sell it to that guy. Can you loan me the money?” Heck yeah. Happy to do that.
Steven Butala:
Assessed value is a number that the assessor at the county level assigns a piece of real estate based on an algorithm so the treasurer in the same county can send out a tax bill on it. It has nothing, and I mean nothing, to do with what the property’s worth. So why are you guys doing a show on it? It seems simple enough to me. Where’s the mystery. I don’t get it. The mystery is that there are other people out there that teach very new investors and wannabe investors that assessed value is how you price a mailer, or that it does have actually have some version of a value in which you can say, “The assessed value is $500. Well then the market value is $750.” That’s malarkey. It’s absolutely incorrect and not true. All of it. And there’s other programs out there that really teach this. So, Jill and I have a long list of things that we have to address when people sign up for Land Academy that are coming from certain groups because I know what they were taught and it brings a tear to my eye, some of it.
Jill DeWit:
You know, it’s funny because I was talking to somebody the other day. They’re like, “Well, my values are set. My property’s assessed at $636.” And they’re all confused. This is a seller. And it’s so funny. They’re all confused. And they’re like, I know what’s worth more than $636. I’m like I do too. Don’t worry about that. That’s not what you think it is. And it’s hard to explain to them sometimes.
Steven Butala:
To make things more mathematically complicated, which is why I truly think there is some mystery in this, each assessor does it differently. So an assessor in one county in Arizona versus another county in Arizona might have a different take on it. Why would that be? Because land values are different and they need to be taxed differently.
Steven Butala:
If I have a quarter acre property in the middle of Maricopa County or in the middle of Downtown, Phoenix that’s next to a metropolis, that quarter acre property needs to have a different assessed value, because the tax values that need to go out…the treasury is going to send out that year are going to be higher. Let’s make it even more complicated. Well, let’s say it’s got a structure on it. Well, I have to tax that structure too, because it’s technically real property. Well, a house is a less valuable from a tax standpoint than an office building is. And an office building is less valuable than, let’s say, a regional mall is and on and on and on. So you can see how these algorithms dramatically change. Zoning will dramatically change your assessed value. So when you look at an assessed value and assign it market value, like what is it worth? I should, what should I pay? And associate those two numbers. It’s kooks. It just absolutely meaningless.
Jill DeWit:
I have a working example too. Oftentimes the assessed value is way behind current times, right? Things will happen. And that triggers a change in the assessed value. Usually it’s a sale. So a perfect example is I know it’s where you’re probably tired of this one, but the state of California. Let’s just say there’s all these properties under prop 13, that their assess values, everything’s really, really low until there’s a sale and things reset. So we all know you can look up and down the beach and sit and click on a neighbor scoop, click on the properties and go look at that one. It’s accessed at $585,000 and the house next to it is 6.2 million. Until there’s a sale, it’s not going to trigger any change.
Steven Butala:
What she’s saying is, and she’s a hundred percent right. But what she’s saying is that the state of California looks at the most recent sale as a huge trigger to reassess the property. In some cases, and I don’t want to get too complicated here, under prop 13, which I think is 1976. It goes back that far. I think, I’m not sure. 76 or like [crosstalk 00:13:57] This is seventies and not eighties, right?
Jill DeWit:
Yeah
Steven Butala:
So if you never sold your property or if you deeded it to somebody who’s a family member, you never got reassessed. Or if you did, it’s tiny. [crosstalk 00:14:12]
Steven Butala:
A maximum of 2% of assessed increased value a year. It doesn’t mean market value.
Jill DeWit:
Right. It’s hilarious.
Steven Butala:
So side-by-side property could have wildly different assessments. And so you can see why you just would never assign a value to that. The market value is driven by pure supply and demand.
Jill DeWit:
So what do you do? Look at what’s for sale today? Use that as your gauge and look at sold comps. Look, what’s recently sold, not just what’s for sale too, by the way, because there are some people out there that are cookie, and then put their ‘for sale by owner’, or are they talk an agent into saying, “let’s list it at this, ‘my make me move number’,” and there’s property, there’s land versions of that too. Like, “If someone comes along for this price, they can have it. Otherwise, the kids are going to get it when I pass on.” So, but you do need to look at, there’s a whole nother show, but pricing and spending way more time on things. This is not the one you should use.
Steven Butala:
Exactly. So I hope we demystified this concept of assessed value. In fact, I would recommend this for somebody who’s new or at least newer or somebody who just doesn’t care, which is me very often. Forget it. Don’t ever look at it, again. It doesn’t matter. The assessed value of a property, doesn’t matter for what we do at all.
Jill DeWit:
That’s the real world.
Steven Butala:
Just forget it.
Jill DeWit:
When I pulled the data and I looked down, I don’t even look at that. I look at what it sold for, and when they bought it, how much they paid. I look at that. I’m like, “Oh, look at that. They paid 82,000 for this in 2010.” I’m like, “All right, that’s kind of interesting. I see where they were going with that.” And then I move on.
Steven Butala:
If I’m staring at a mailer and I’m about to send it to Offers 2 Owners, our mail company, and it’s at the end of the mailer. And I sort for assessed value. And I see at the tip top of my screen, maybe there’s 7,000 rows of data to do a mailer. And at the top of the screen, and I know it’s maybe two zip codes in their like-kind property or what I think is like-kind property, I did my best on the mailer and think it’s ready to go. And I see at the top in the assessed value column, a number like $16.2875 million of assessed value. That’s a trigger for me to remove that line of data because I believe there’s errors. There’s input errors on the assessor’s part at the top.
Jill DeWit:
Well, that’s not possible.
Steven Butala:
From what I hear, I don’t know this from personal experience, there’s a lot of drinking in most assessor’s offices. The same thing on the bottom. The same thing happens on the bottom. If I see all likekind property and then there’s 10 or 15 properties at the bottom. This is real. This happens on every mailer. 10 or 15 properties on the bottom, maybe more, that have assessed values of 0.003, 0.4, 6, 16. Almost every assessor that I’ve ever studied has a bottom number. Usually it’s like 500.
Steven Butala:
Well, that’s great Jack, but I’ve heard you say a million times. Non-profits, like non-profit hospitals, they don’t pay any real estate taxes at all. Universities that are non-profits don’t pay any taxes at all, real estate taxes. And that’s absolutely true. That doesn’t mean they don’t get assessed. The assessor in most counties are really interested in figuring out every single tax billing period, how much money they left on the table because non-profits don’t have to pay property taxes. So they keep up on those assessments and trust me, they’re big numbers. They won’t hit your mailer. If you mistakenly get a hospital and your land mailer, sounds like you have bigger problems than assessed value.
Jill DeWit:
Happy you could join us today. Five days a week, you can find us right here on the Land Academy Show.
Steven Butala:
Tomorrow the episode on the Land Academy Show is called, Our Last Mailer Deconstructed and How We Made a Quarter of a Million Bucks. You are not alone in your real estate ambition. “Really? You guys have to talk about a mailer again, huh? Can’t you find something else to talk about that’s a little more interesting than a mailer?” It’s funny you should bring that up.
Jill DeWit:
Oh gosh. Hey, if you’re interested in learning more about us or what we do, check out landacademy.com and houseacademy.com. We provide the education tools and support you need to be flipping property like the pros.
Speaker 4:
We are Steve and Jill.
Steven Butala:
Information.
Jill DeWit:
And inspiration.
Steven Butala:
To buy undervalued property.
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