Bill Brown completed the building around January 1, and got the tax bill the following October. He knew the building was overvalued but Bill was very busy trying to get the units filled up. He thought he should check out the tax situation, but he had a lot of things going on. Besides, he could always appeal it next year when he had more time. BIG MISTAKE. Snick! The trap closes.
January 1 of that year was the magic day, the year the new construction was completed. So the valuation for that year set the Maximum Assessed Value, forever, more or less. That year his assessed value was calculated in a special way, for that year and that year only. For the year of construction, the real market value is multiplied by a factor called the Changed Property Ratio to set the Maximum Assessed Value. That Maximum Assessed Value is set in stone and will affect the value indefinitely. The method is not always bad, but if the value is wrong, the results can be disastrous.
The truly heartbreaking thing about this scenario is that the extra taxes will continue ad infinitum. Because he waited for the second year to appeal, he was able to get the real market value changed but not the assessed value. The tax stayed excessively high. This burdensome tax situation remains to this day, sapping the profits. The project is actually in danger of failing. This is all because Bill missed his window of opportunity.
The morale of this story is that new construction values should be watched like a hawk for the year or years of construction. This would have been the time to bring in a professional, such as myself or others, especially since the owner is burdened with so many projects. I don’t mean to imply that this trap is set on purpose. This trap is an unintentional consequence of Measure 50.
The actual tax computations are a bit complex but I will be glad to send you a more complete explanation if you request it.
Your tax statement is loaded with numbers but the most prominent number is the Real Market Value which is near the top of the page. While this number is important, it can be deceiving. Consider the illustration below.
George Jones gets his tax statement and the statement says that the real market value is $1,000,000. George knows this is not correct because he just had a MAI appraisal on the property estimating the value to be $900,000.
So, he files an appeal at the Board of Property Tax Appeals, submitting a copy of his appraisal as evidence. He meets with the Board of Property Tax Appeals and the board agrees that the real market value is only $900,000. The Board dutifully lowers the real market value to $900,000. A few weeks later George gets his revised tax statement and, sure enough, the real market value has been reduced by the board. Then, to his unpleasant surprise, he notices that the actual taxes are exactly what they were before the real market value reduction. Surely there must be a mistake. George calls the assessor’s office and asks to speak to whoever does the tax roll correction.
“Can I help you?” says a pleasant female voice.
“Yes.” George says. “I think there is some mistake. My real market value was reduced by $100,000 by the Board of Property Tax Appeals. Yet there is no reduction in taxes.”
After getting his account number and calling up the account on the computer, the tax roll correction lady comes back on the line. “Yes, I see that the Board did reduce your real market value by $100,000. But, you see, taxes are based on assessed value, not on real market value. Your assessed value has not changed at all. Therefore your taxes stay exactly the same as they were.”
Needless to say, George is very disappointed.
A property owner, looking at a large tax bill, would likely wonder if this bill can be reduced some way. Is it worth the effort of going though the appeal process? Continue reading