property tax adjustments

[rhinopham]

Question to forum: after all is said and done, the blood is in the streets and the price of a single family home has dropped by predicted 20-40%, is it possible to get your house re-apparaised and pay a lower revised property tax based on the new appraised “worth”? I have a colleague who lived through the last downturn in the early 90’s who has claimed to have done this but haven’t found much in the tax journals to support this possibility. Any thoughts?

[John F]

Yes:

I bought a condo in Poway for $111k in 1990 and the county reassessed it down in increments to a low of $85k in 1996. I didn’t even have to ask but obviously it’s better to be proactive and request it yourself.

However, the Prop 13 basis does not adjust downward and the assessment was “recaptured” with a 2% annual increase using the 1990 purchase price as the basis not the 1996 low.

Go for it if you can.

[sdcellar]

I’m not sure if it’s changed, but I did it myself back in the nineties and no appraiser was necessary. Just collected a few comps (10 actually), submitted them along with a letter stating what I thought the value of my home was and sent it to the assessor’s office.

They approved, it my tax basis went down and from that point it increased at the standard 2% annually provided for by Prop. 13 (which is what I also believe covers this process).

At some point, the assessor can kick it back up to the original value including the 2% annual increase, but not until the value actually suppports it. I sold before that, however, so I can’t really provide any further detail on that aspect.

[Bugs]

It wasn’t all that common during the last downturn because the assessments weren’t large enough to warrant chasing the 20% reduction in taxes. That was when homes were selling for 1/3 of what did at this last peak.

Roughly speaking, if a home that was purchased new in 2005 for $900k is generating about $10,080 in annual property taxes (which includes several types of assessments in addition to the base), a 20% reduction in the base tax rate would net about $1,800/year or so in tax savings between the time it was reduced and the time the market value returns to the original level. Unlike with the Proposition 13 limitations of 2% annual caps, if a County Assessor reduces a tax assessment because of market conditions they can adjust it back in however little time it takes for the market to recover. After it gets back to the original value, that’s when the 2% annual cap takes over again.

To get the reduction, the property owner would need to file the appeal. If the tax assessor disputes it the matter will go to an appeals hearing. At that point the property owner can bring the data they think supports their case and the assessor will do the same. Obviously as an appraiser I’d tell you to get an appraisal to document the comps and provide the outside opinion of value, but it’s my understanding that an appraisal is not necessary, per se.

In order to decide if it’s something you’d want to do, you’d have to consider the costs involved in getting an appraisal and perhaps hiring a consultant to argue your case for you, as well as your own time and effort. The thing to remember is that the reduction is temporary and only lasts as long as the market value of the property is below its prior assessment. As an example, a 20% reduction on the $900k home that lasts for 2 years would gross a savings of $3,600 before considering the costs to obtain that reduction. And this is assuming the market doesn’t come roaring back next year.

When homes were commonly selling for $150k-$300k the property tax savings were generally not enough to justify the appeal. But that was then and this is now.

[PerryChase]

What you are referring to is Proposition 8 that allows you to file for temporary reassessment of your property.

Anyone who bought after 2004 should file for reassessment. It’s a simple process and anyone can do it themselves. I did it in 1990s and received a reduction in property taxes. But when values go back up, you’ll be back at an assessment of purchase price + 2% compounded annually.

Property tax wise, it’s best to buy at the through and hold on to your property forever.

Here are some links to the SD Assessor’s site.

http://www.sdarcc.com/arcc/docs/calrev.pdf

http://www.sdcounty.ca.gov/cob/aab/index.html

http://www.sdarcc.com/arcc/services/propsales_search.aspx

[rhinopham]

Thanks for the great info everybody; sounds to me like the best course of action is to wait until the trough and appeal near trough’s values. Seeing how long previous boom/bust cycles have lasted, if it takes approximately another 5-8 years before we’re back at current 2006 prices, it might be worth the time and effort to re-evaluate assessed values for property tax reductions especially if your purchase price was over 30-40% of 2000 levels.

[PerryChase]

rhinopham, no, you don’t have to wait for the through to appeal. You can appeal every year as long as prices continue to drop. If, every year, you can show 3 comparable properties at lower prices, you should get a continual downward adjustment until the market hits bottom.

When the market begins to recover, leave it up to County Assessor to adjust the assessment upwards as they have time or remember (they “forgot” to reassess Duncan Hunter’s house until the UT mentioned it. They are still looking into it).

[rhinopham]

Perry, you guys rock….

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