As I’ve talked with members regarding the proposed purchase of the Tetra property, one of the questions most often asked is “Why is there a difference between the assessment and the sale price?” Below is a detailed answer to that question. If you have other questions about the referendum, the property, want to see more detailed information, or want to cast your ballot, please visit the Tetra property page.
Assessed values are normally not used to establish negotiated sale prices for commercial property. It is the other way around — negotiated sale prices for commercial sale property are used to determine assessed values. This is so because the definition of fair market value is:
“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
- Buyer and seller are typically motivated;
- Both parties are well informed or well advised, and acting in what they consider their own best interests;
- A reasonable time is allowed for exposure in the open market”
For example, the purchase price of the Reston National Golf Course in 2005 was $5,009,819 for the property. It was assessed at the time for $3,492,500. The assessed value did not dictate the sale price. It is extremely unlikely that the owner of the Reston National Golf Course would now be willing to sell the golf course for its current assessed value of $972,380.
If it is the policy of Reston Association to never purchase additional common area at more than its assessed value, it will not only never be able to purchase the Tetra property — it will also never be able to purchase the golf course.
Assessed values are based on recent sale prices of “similar” property. It is done through a mass appraisal process (thousands of properties valued at once) which does not involve the detailed study performed in an individual appraisal. It is common for commercial real estate sales prices to far exceed assessed County assessed values, as shown on the below chart.