County Tax Assessments: Purpose, Market Value Comparisons, Effect On Taxes

Posted November 23, 2020 at 5:00 am by

Merri Ann Simonson - Contributed photo

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.

Assessor’s Office:

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.

Bottom line:

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.

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Categories: Government, Real Estate

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