Your Home: Average vs. median price and how it affects your home’s appraised value

The phones have been ringing off the hook since the Johnson County appraiser’s office notified homeowners of their home’s 2017 appraised value. As the Post reported earlier this month, the Johnson County valuation jumped up 7.9 percent in the last year and cities in the Shawnee Mission area like Prairie Village skyrocketed by as much as 11.9 percent.

Our clients and friends have been caught off guard, to say the least, by such a significant jump in one calendar year. And understandably so. The 2017 increase is the biggest that we have seen in six years.

Please know that I am all for fair taxation. We have to keep the coffers full somehow, right? But I do have a concern about these new 2017 numbers. Let’s use Prairie Village as an example.

The average sales price in Prairie Village in 2016 (585 homes sold in MLS) was $298,223. As we know, this average was calculated by adding up all 585 of the sale prices and then dividing them by 585 to get the average sales price for the year. My concern is that 21 of those sales were more than $750,000 with several of them over the $1 million mark. The downside to using average sales prices is that really high or really low numbers on the spectrum can skew the results.

And in this case I believe that they do. The median sales price for 2016 in Prairie Village was $250,000. With a data set as large as 585 sold properties, in my opinion, the median is a better representation of how the market is performing versus the average. The median is found by placing all sales prices in value order and then finding the middle value in the data set where half of the sales prices are higher and half are lower.

Most important is that each city, subdivision and neighborhood perform as their own market within a market, so it is important to know how your market is performing. For example, the homes close to the Village Shops have seen a sharp increase in demand (and value) due to the tear-down phenomenon that is currently taking place. The value of a four bedroom, two full bath Cape Cod south of 75th Street is not as valuable as the same home north of 75th Street. And then if it is within walking distance to the shops, the value is even higher. Therefore, the appraiser’s office is at a disadvantage. They have not been inside these homes, nor do they study each and every market like I do. So I don’t want the takeaway from this column to be that Johnson County is trying to manipulate the system. Rather I see that the system for real estate taxation as antiquated and oftentimes inaccurate.

The county’s website does encourage a homeowner file an appeal if they feel that their appraised value is higher than what fair market value might be. And I applaud them for that. The one caveat is that you only have until the end of March to make your appeal.

Unrealistic and abrupt tax increases do have consequences. Just last night my wife, Leah, was speaking with one of her clients who were strongly considering an offer on a Johnson County home. That was until the new taxes were revealed to them. The new figures  placed the home out of their financial comfort zone. Just like rising interest rates, rising taxes can have a direct effect on the overall real estate market. At the end of the day, it is all about affordability.

Finally, my concern is that the new tax values are representative of a market that we are no longer seeing. Although most of the Shawnee Mission School District is still in a seller’s market, the demand for homes is not as high was it was at the same time last year. Again using Prairie Village as an example, the percentage of homes for sale that went under contract in February 2017 (41.5 percent) is down 14.6 percent when compared to February 2016 (48.6 percent). The SMSD has seen a 15.4 percent drop in demand when the two months are compared. Less demand leads to more supply, which leads to more competitive (or lower) home values. Just something to consider.

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