|by GRI Instructor Cari Lynn Pace, GRI, CCIM, CRB, CRS |
Teaches GRI Courses 100, 101, 102, 104
View future classes taught by Cari Lynn Pace
When Your Property Value Drops, Get Your Property Taxes Lowered!
You can request an Assessment Review (under Prop 8) if you feel your property has had a decline in value. The filing period is from July 2 through November 1. If you receive a temporary reduction in your assessment, it will be renewed each January 1 to see if the value needs to be maintained, lowered, or increased.
The Assessor’s Office is willing to comply, but it’s helpful for property owners to be pro-active. The Assessor’s Office in your area may be hopelessly understaffed and overworked.
How can you make sure property is correctly assessed? Can you get a lowered assessment without selling? As a property owner, you have a “Taxpayer Bill of Rights” entitling you to what is termed an “informal appraisal review”. Do your homework. Send the assessor’s office evidence that similar properties have a market value lower than your assessment. This evidence would be the sales price of properties like yours that have a sale or lien date within 90 days of the date that you request the review. As Realtors, we are familiar with values and can assist our clients, and potential clients, with this information.
If your request is denied by the Assessor’s Office, or the proposed assessed value is not acceptable to you, you can request a “formal appeal hearing.” In this procedure, the property owner’s information is heard by a 3-member assessment appeal panel which typically has been appointed by the local Board of Supervisors. This panel’s decision is final.
The decision of whether your property assessment deserves to be lowered, and by how much, depends on many factors. Few areas in California are homogenous communities. Within the same block, there can be extreme variations in value from one home to another. Buyer preferences and demand typically create the market; it’s more than a matter of bedrooms and baths. Factors causing values to differ among similar homes could include the condition, view, construction type, side of the street, lot topography and size, weather pocket, and the like. You will need to clearly demonstrate that comparable properties sold are indeed similar to yours. If no such data is available, a paid appraisal may be your best solution.
If your property has decreased in market value and the Assessor’s Office grants you a lowered assessed value, your new assessment can change each January 1st as the market adjusts. If the market drops further, you may request another drop in your assessed value. If the market rises up, your assessed value will likewise rise, along with your property tax bill. How much it can rise depends upon whether your property has reached its “Proposition 13 basis”.
The acquisition price you paid for your property (plus most capital improvements) is referred to as your “Proposition 13 basis”. Your Proposition 13 basis – the valuation point – will become important at a later date, when the market has improved and your current assessed value “catches up” to the price you paid. Once your property assessment has reached your Prop 13 basis, your property assessment can rise only 2% per year. Prop 13 limits the rise; it does not limit any reduction.
As noted, if your assessed value has been reduced, nothing changes until there is a change in the market. If the market values drop further, your assessed value can be reduced again. If the market values rise, the assessed value will go back up.
Proposition 13 limits the extent to which property assessments can rise once your property has hit your Prop 13 basis. At this point, future assessments can rise a maximum of 2% per year.
As an example, let’s say you paid $800,000 for your home four years ago and the value is now demonstrated to have dropped by 20%. The Assessor’s office can give your property a new assessment of $640,000. If there is no change in the market values your assessed value will stay the same. If however the market surges up by – let’s say 10% one year - your assessed value will also rise, to $640,000 plus $64,000 or a bit over $700,000. You don’t have to sell for this rise in property taxes to take place. If the market rises another 10% the next year, your property would be assessed at $700,000 plus 10% making your assessment $770,000. Each jump or decline in assessments continues without limit until your assessed value reaches your Prop 13 basis. In this example, once the market value rises to $800,000 the 2% limit on increases will kick in.
Take a good look at what your tax assessment says your home is worth, and if necessary, let the Assessor’s Office know. FYI, the Assessor’s Office doesn’t determine the tax rate, nor do they collect the taxes. Our state, county, and local politicians decide how much you are taxed per dollar of assessed value, and how they will spend your money. Good luck!
Cari Lynn Pace is a S. F. Bay Area Broker and Master Instructor for GRI. She has written several courses and books and is a real estate expert witness in litigation. Her latest book "Don't Shoot Me, I'm Just the Real Estate Agent!" describes the top 100 reasons why agents get dragged into lawsuits. This article should not be interpreted as indicating the Standard of Care for real estate licensees.