The Market Determines Price, Not the Government

I have observed a rather disturbing sentiment surfacing as a result of the Fluvanna County assessment controversy. I have heard a number of people say things like, “Well now I am going to sell, because my the county says my house is worth ‘X,’” or, sellers who say, “now I don’t have to negotiate the price, because the county says my house is worth more than the list price.” Both of these statements are dangerous, and exhibit a fundamental misunderstanding of how markets, and especially real estate markets, work.

I am going to say this once, very emphatically, so that hopefully I will only have to say it once: THE MARKET DETERMINES PRICE, NOT THE GOVERNMENT.

The reason that a home is worth some amount of money, any amount of money for that matter, is because that is the amount of money that someone else is willing to pay for it. This is the way free markets work. The value of a commodity, in this case a home, is determined by supply and demand and a buyer’s willingness to pay.

The purpose of any government assessment of property is to determine market value of the property so that the government can collect the maximum amount of tax revenue. The government IS NOT SETTING THE VALUE. In fact, the government is incapable of setting the value of any property, unless it is the government who is buying it. Even then, the person holding the property may not want to pay the government’s price. Of course, the one exception to this may be eminent domain, but that is a discussion for another day.

What people must remember is that just because the government says a home is worth “X” does not make it so. The only person that can make it so is a buyer for the property. Consider this– if you opened your assessment, and it said that your home is worth $1,000,000,000,000 (1 trillion dollars), would you believe it? Of course not. Conversely, if you opened the assessment, and it said that your home is worth $.01, would you believe it? Of course not. Just because the number that is on your assessment is palatable to you doesn’t make it accurate.

The only way to determine the value of a home is to put it on the open market. Only then will you know what buyers are willing to pay for it. Sure, a REALTOR can give you a CMA, or a licensed appraiser can give you an appraised value, but those are simply educated guesses based on the recent history of similar homes. While both should yield a number very close to market value, they may not. In selling your home, you may find out that it is worth more than you thought, or you may found out it is worth less. Either way, the government isn’t going to be able to tell you anything. The market will speak for itself.

Technorati Tags: real estate, realtor, virginia, fluvanna, assessment, taxes, free market