October 6, 2013

Real property assessments, and especially property revaluations, are a hot topic.  Unfortunately both topics are largely misunderstood.  In this article I will present “facts” to hopefully eliminate some of the confusion.  Some readers may be surprised by this information.

The property assessment process is dictated by state statute, and implemented by each local town.  State law requires that every property must be assessed at its “fair market value.”  If every property sold every year its value would be obvious.  It would be its sale price.  However, in most communities less than 5% of all properties are sold each year.  That means that local assessors must “estimate” current values for all those properties that did not sell.

Property assessments really have nothing to do with the amount of tax that any particular property will pay.  The size of each municipality’s budget determines how much money it must raise.  The total taxable assessment of that municipality determines how that tax burdenis divided.  If my property, your property, and everyone else’s property are all assessed at “fair market value” then each of us will pay our proper share.  The challenge is to determine the value of those parcels that have not sold recently.  For example, I purchased my residence in 1984, more than 29 years ago.  We paid $24,500.  Since then we have done extensive renovations, put on an addition, and property values have increased significantly. Obviously it shouldn’t be assessed for $24,500 in 2013.  Determining the proper current assessment is every Assessor’s primary challenge.

The primary way to determine fair market value is by comparing all properties to those that recently sold in an “arm’s length transaction.”  There are well defined rules and procedures for making those comparisons. Most assessors do an excellent job and most property-owners do not object to the accuracy of the values assigned to their property.  However, over time there is a tendency for values to shift, either higher or lower.  Rather than re-assess every parcel every year those differences are reflected by an “equalization rate.  That rate represents the percentage of difference between the assessment and “fair market value.”  A simple example may be the best way to explain this concept.  If a residence was purchased in 1980 for $50,000, it should have been assessed for $50,000 if the 1980 equalization rate was 100%.  If that property sold for $100,000 in 2010, that meant that it was only assessed for 50% of its true value, and its 2010 equalization rate would have been 50%.  If a town-wide revaluation is conducted every property should see its assessed value double.  However, every property should also see its equalization rate double from 50% to 100%.  In most revaluations one-third of the equalized assessments stay the same, one-third decrease, and one-third increase.  Not surprisingly, those facing increased assessments complain quite loudly.   The other two-thirds don’t say anything.  This creates the impression that everyone’s equalized assessments went up, which they didn’t.

The County Office of Real Property Tax Services provided me with data on the most recent revaluations conducted by towns in Allegany County.  Seven towns completed “revaluations” in 2011 and 2012.  Their prior equalization rates ranged from 70% to 100%, but all were at 100% after completing their revaluation.  Three towns saw their full-value assessments decrease, not increase, after their revaluations.  After completing their revaluations four towns saw their share of county taxes decrease, both in percentage and absolute dollars.  Total assessment increased in all seven towns by $11,347,100, or 3.01%.  For those two years the County taxable assessment increased by more than $81 million.  That means that more than $70 million of increase came from new assessment, not from revaluation increases.

At a recent session of the County Legislature one Legislator claimed that reduced county tax rates are primarily the result of revaluations.  That assertion is inaccurate, and reflects a misunderstanding of revaluations.  The reduced County tax rates for 2011, 2012, 2013, and 2014 represent true reductions of each taxpayers tax liability.  And that’s a fact.


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