Wednesday, February 25, 2015

Challenge Your Tax Assessment? Part II

When every unit in a condo development is assessed the same, should you challenge the assessment?

In an earlier posting, I discussed challenging your tax assessment.   In some jurisdictions, such challenges can be easier to make than in others.   For example, at our lake house, they raised everyone's assessment in our development, and some of the owners went nuts and hired lawyers to challenge their assessments.  In a scenario like that, where everyone's home is different than one another and the lots sizes and locations (lake frontage, view, access) are all different from one another, it may be possible to argue that your house was over-assessed.

Assessing such unique properties is a difficult task at best.  The assessor might use one valuation based on amount of lake frontage, amount of acreage, and the like.   But if some of that lake frontage is unusable (on a right-of-way, for example) or the acreage is mostly a vertical cliff, such valuations may be flawed.

And if properties haven't sold in a long while, it is hard to use "comparable prices" as the sales price of one property may be radically different from another.   It is difficult to assess such properties, and the system is thus flawed, and often assessments are unfair - and the fellow who barks the loudest and hires the most expensive attorney, ends up getting a lower assessment.   Not much lower, perhaps, but lower.

We chose a different tactic and just sold out and left.    If the locals want to chase away vacationers by socking them with high property taxes, then you might as well give 'em what they want.  Never live somewhere where you are not wanted or appreciated.   It is a null-sum game.

By the way, it is worthwhile to take a moment to understand the difference between an assessment, an appraisal, an asking price and sales prices.   They are all different numbers and mean different things, and often we use the terms interchangeably, and often people fail to understand what they mean.

An Assessment is a number generated by the taxing authorities.   It may have nothing to do with the value of your property, but instead is just a number generated as a placeholder of value.   The assessed value, times the "millage rate" is your tax bill amount.   Assessed values, historically, have been lower than actual sales prices or appraised values, for various reasons.  In some jurisdictions, assessed values may be only a fraction of actual sales prices.   Some jurisdictions talk about assessing at full sales price values, and while they get close to sales prices, they still often fall short.

I have seen, in online forums, clueless homeowners who look at their tax assessment documents and say, "OMG!  My house has gone down in value!  Look how low the appraisal is!"  But it is not an appraisal but an assessment for tax purposes.  It has nothing to do with market values for homes.  And yes, the types of people who say shit like this are clueless condo owners, which illustrates why a lot of people should not buy condos - or any real estate for that matter - if they are that dumb.   And they are.

An Appraisal is just a number generated by a paid appraiser as to what he thinks the house is worth. There are different ways of generating appraisals, and all of them can be somewhat specious.  Appraisals are usually done for banks, so they can show they did "due diligence" in preparing a loan document.   Once in a while, a homeowner may request an appraisal, in order to determine a selling price, or when selling a home that is part of an estate (any smart Executor of an Estate would do this, to avoid being sued by the heirs).  But for the most part, it is a number generated for the bank, and not a real indication of the property value.

Asking Prices are just that - what people are asking.   If you go on Trulia or and look at asking prices, you will get a lot of bad data.  Most houses don't sell for asking price, but for a lesser amount (except during the bubble, when people paid more than asking price, which is a sure sign of a bubble!).  For the most part, this is bad data, although you might be able to infer actual sales prices by taking asking price and dropping it 10% or so.

Sales Prices are the real deal - what stuff is actually changing hands for, and what people are actually willing to pay.  Sometimes this data is available online (from the Assessor's office) sometimes not.  Sometimes the data is misleading (when a sale takes place within a family) and thus is inaccurate.   But for the most part, if you really want to know what a property is worth, it is the actual comparable SALES that tell the tale.

But getting back to assessments, in other situations, it is not hard to assess a property if there are multiple units that are nearly identical, and a multitude of recent sales to show actual values.   Such is the case for our Condo in Virginia, which God willing, we won't own too much longer.

During the recession, the assessed valued dropped to about $85,000 and stayed there for nearly four years.  This year, they have raised the assessment to about $125,000, which is a 29% increase over last year.  Ouch.  We should appeal this, right?

The County has an online appeal petition form you can fill out.  Unfortunately, just having your assessment raised more than you would like is not grounds for appeal:

Provide the Reason(s) for Your Appeal

Under state law, financial impact and/or the rate of value change is not sufficient grounds for appeal. As required, the county’s assessment is an estimate of fair market value as of Jan. 1, 2015. Appeals should be based on at least one of the three categories noted below.
Place a check in the box next to each applicable reason for appeal.

Fair Market Value: This property is assessed greater or less than its Fair Market Value as indicated by a review of comparable properties.
Lack of Uniformity: This property assessment is out of line generally with similar properties.
Errors in Property Description: Assessment is based upon inaccurate information concerning this property such as lot size, square footage, condition of property, flood plain, topography, zoning, etc.

In this instance, the "Fair Market Value" of the property is still higher than the assessment.   By searching online, I cannot find another condo in the area that is even selling for as little as the assessed value.  Units like this are selling for $150,000, so claiming that the Fair Market Value is lower than the assessed value is a non-starter.

Similarly, since you can search the assessments of all the properties in the County online (fun to snoop on your neighbors!  You can also tell if they are delinquent in their payments, in some Counties!), I was able to search quickly, all the other condos in the building.  They all went up 29% this year, and all are assessed at the same amount as mine, if not higher.   So it would be hard to argue that "similar" properties are assessed differently, when my neighbor's condo has the exact same assessed value as mine.

The last one is really the only area of hope.  As I noted at the beginning of this piece, up at the lake house, you might have been able to argue that things like "condition of property", topography, zoning, etc. would affect value.   Yes, you might have 500 feet of lake frontage - but maybe 300 feet of it is a public right-of-way and unusable.   That might lower your assessment.

Here, however, we are talking about a one-bedroom condo.  Not a lot to distinguish it from other one-bedroom condos.  Maybe we could argue that its ground floor location makes it less desirable.  Perhaps.  I would not expect that to alter the assessment much.   Maybe I'll try it.

But for fungible, interchangeable housing units, challenging an assessment is a lot harder to do - if the assessment is equal to or lower than sales prices, and if the assessment is in line with similar properties.  Sometimes there is not a lot you can do, other than grin and bear it.   Taxes always go up, over time.  It is a fact of life.

UPDATE:  I filed an Appeal based on the third option, arguing that as a ground floor unit, it should be assessed lower than upper floor units.  We'll see.   The resale value for a ground-floor unit is lower than upper floor units!