County Tax Assessments: Purpose, Market Value Comparisons, Effect On Taxes
Higher Tax Assessments Don’t Always Lead To Paying More Taxes
By Merri Ann Simonson, Managing Broker, Coldwell Banker San Juan Islands Inc
All of us island property owners received our tax assessment notices from San Juan County recently.
As real estate agents, we have been fielding many questions about the statements and new assessments.
As you may recall, the state has mandated that our county assessor’s office convert to an annual assessment update cycle versus the cyclical system we were on for years. The current values are for a one-year period only and will be adjusted the next year. The current process is much more stable and refined and is a more accurate system than we have had in the past.
For the last 20 years, the majority of the properties sell above their tax assessments with the exception of 2008-2013 which was the recession.
For example, during the recession, properties were selling at or below the assessor’s values. However, back in 2006, many of the same type properties sold in an average range of 125-150% over their tax assessments.
These average percentages varied based on the type of property but generally, that was the trend. Since 2014, due to market recovery, most homes are again selling above their tax assessment.
Reviewing the tax assessment as compared to the actual sales price for high-end homes is not reliable as they are very difficult to appraise due to custom features. The assessor relies on indications of value from market sales, and when there are not enough sales to determine the value of custom features, it is difficult to find an accurate standard of value for assessment purposes.
I do have to admit, as an agent, that processing an opinion of value for a home in excess of $2.5 million can be challenging; the owner typically builds a very custom home with an elaborate description of materials. Even licensed appraisers find it a challenge and some contact agents for more details.
Again, there are fewer sales of similar homes in that segment of our market so there are not as many comparable properties to review.
As always, it is much easier to be accurate when you have ample data to use.
The Purpose of the Assessments:
Many property owners are chatting about their new assessments. Most of the confusion around the issuance of new tax assessments stems from the purpose and process of the tax assessment.
The assessor is required to value properties for tax purposes at true and fair market value. The valuation assigned by a realtor is for the purpose of marketing and the value assigned by an appraiser is for the purpose of lending, estate planning or probate purposes, and will most likely be different amounts. The process to the valuation is different for each therefore, the results will vary. Generally, the differences in the process are described below.
Appraiser and Agents:
Both appraisers and agents conduct an interior inspection then identify at least three or more truly comparable sales that are recently closed that are physically inspected or at minimum, viewed via photographs in the Northwest Multiple Listing Service. Ideally closed sales should be less than 90 days old. The appraiser and agents spend much more time on the property determining the desirability based on the features and amenities. They also rely upon a cost approach, but a depreciated figure is deducted based on the age of the home and its condition. They will analyze the income approach if applicable. They base the value of docks at market.
Due to the size of our market, finding truly comparable property sales in our county has always been the challenge. A real estate agent even differs from an appraiser as we can use “pending” transactions as comparable sales. We also consider the current level of similar inventory and absorption rate in the category to assist in pricing a property for the current market for our clients. Pricing against inventory versus closed sales is common in a positive trending market with low inventory.
The assessor’s office performs appraisals for purposes of ad valorem taxation. This is part of the process for how we provide funding to all local government services, including schools, libraries, ports, fire districts, the hospital district, emergency medical services, cemeteries, state schools, parks, roads, sheriff and government.
Appraisers that work in the assessor’s office generally use information gathered from site visits without the benefit of an interior inspection. The characteristics of the home and land are considered and compared on a “mass appraisal” basis to all other properties countywide, with statistical analysis of properties grouped by similar market influences and characteristics. The “mass appraisal” method provides a more equal distribution of property taxes among property owners within the jurisdiction through standardization and improved consistency in the work of appraisers.
It is impossible with the size of our county, and the size of our assessor’s staff to physically inspect every property on an annual basis. The properties are valued every year and the assessor’s appraiser physically inspect one-sixth of the county properties each year. There will always be a lag for adjustments just to the statement dates. The recently received assessment adjustment was based on closed sales in 2019 and only a portion of 2020. After reviewing and validating those sales, they use approved appraisal practices to determine the percentage of increase or decrease in value in neighborhoods of similar properties.
As the assessor’s office performs this process on an annual basis, the historic variances will not be as extreme. If properties are selling above or below assessed values due to market conditions, those sales will be the basis for a statistical update the following year.
The assessor’s office is required to assess at market value but with the constraints of limited access cited above, the task is quite different as compared to an agent or appraiser. The assessor is not allowed to be a member of the Northwest Multiple Listing Service and use their database but they do use the various brokerage firm’s real estate websites to view details and interior photographs which is allowed by the Uniform Standards of Professional Appraisal Practices.
The variance between the tax assessment and the values produced by appraisers and agents is expected, as the process defines it.
Private appraisers outside of the assessor’s office do not rely upon the tax assessed value as an approach to their valuation at all. The uniform report forms do not require the appraiser to provide the assessment information. The appraisers never compare value conclusions with the assessor’s office therefore they are not influenced by the assessments. Their assignment is to provide market value to the lender or client, not the tax assessed value.
It is also important to note that appraisers can and do provide opinions of value as of any given date; the assessor’s office is required to value property as of January 1 of each year so the aging of the assessor’s information will always be an issue, especially in an active market.
Agents are not licensed appraisers and there is no regulation surrounding how they calculate a property’s value; there is no uniform calculation. Some agents use the assessed values as a benchmark only. Some agents do not rely on the tax assessed value at all and don’t let it influence their recommendation for pricing because they know the assessor doesn’t necessarily have access to the interior of the improvements. Regardless of what an agent recommends, the ultimate pricing decision is made by the seller.
REALTORs must, however, comply with Article 1- Duties to Clients and Customers of the REALTOR Code of Ethics which obligates REALTORs to provide an honest opinion of market value.
Agents are not licensed to provide opinions of value for any other purposes than buying or selling real estate. If you need estate planning, value opinion for tax value appeal or for a legal proceeding such as a divorce, only a licensed appraiser may be of assistance.
Buyers, of course, are looking for the best price possible and will use the tax assessments when it favors them. As agents, we explain to the buyers the differences in the process and how the value amount may vary.
Websites such as Zillow, Redfin and Trulia rely upon the various county assessor’s information and valuations to process their own calculation. Their values may be reliable in Metropolitan areas where subdivisions of very similar homes are bought and sold on a regular basis, but the website’s calculation of value performs poorly in small, low volume, custom construction markets such as San Juan County. Again, as agents, we explain to buyers that the website calculators are not reliable in our county. Sellers need boots on the ground in our market.
We should all be pleased that our assessor’s office appraises as fairly as possible and uses the methods advised by the Department of Revenue and defined by statute. The tax assessment appeal process is straight forward which allows property owners to present their petitions themselves. Further, we historically have had the lowest levy rate in the state.
If your value assessment is adjusted downward, your tax statement may or may not have a correlated downward adjustment. Each tax district submits a budget for its expenses as constrained by state law. The total amount requested is divided by the total assessed value of each district. This results in a levy rate for each district. Your taxes are a composite of the levy rates for each district in which your property resides multiplied by your current assessed value, divided by 1,000.
If all properties increased or decreased by approximately the same percentage, you would likely see very little change in your tax statement regardless of the increase or decrease in your value. This complies with Washington State laws that were formed for the sole purpose of ensuring that local government can rely upon a predictable amount of revenue each year so they could process a balanced budget. If the tax revenue had large fluctuations the result would be chaos for the local government services.
Another factor to keep in mind when considering your tax bill is the number of acres and percentage of total acres in San Juan County that are either exempt or pay a reduced amount due to being in a special use program. The taxes that would have been paid by these properties are shifted to the taxpayers based on public policy decisions by the state and county legislature.
If you are upset about your assessed value increasing, ask yourself, “Would I sell it at that value?”
Some successful approaches to the appeal process include the argument that you recently purchased below the tax assessed value or that you have it on the market for less than your tax assessment and it has yet to sell.
As in the case of all my really long, boring articles, this article is for informational purposes and is not intended to be inclusive of all components of the assessing and appraising process.