How can my property tax assessment be so high in this market?

It’s no secret that the housing sales market in the region is getting tighter. The Northwest Multiple Listing Service (NWMLS) statistics report for July ‘08 shows the YTD average sales price has fallen over $20,000 below the previous year’s average price, with this YTD number of units sold accounting for only 65% of 2007’s YTD totals. It seems that everyday there is a new TV news feature or newspaper article bemoaning the stagnant market.

And yet, when homeowners get their tax bills, their assessed value may have gone up by double digits! What the heck?

Commercial property in King County has been hit even harder. My work partner, Ed Boyle, and I are currently working on an appraisal of current market value for a tax appeal of a long-time local business whose assessed value went up 100%!

Do you think your property value is over-assessed? Don’t know how to appeal your assessment? Fortunately, the problem and a possible solution are linked together. The Assessor’s Office is forbidden by state law to take 2008 market sales into account for this apportionment. But you aren’t!

There are three approaches to successfully appealing your tax assessment:

1. Can you show that the assessor’s office made a material mistake? If your assessed lot size or evaluation of structural details is significantly different than the actual surveyed size, this would suggest a manifest error. Check your assessment for material accuracy or math mistakes.
2. Are you being assessed at a different rate than neighboring properties? It is the responsibility of the Board of Equalization to assure that comparable properties are assessed on an equal basis.
3. Is your home’s assessed value roughly the same as the property’s current market value? As was mentioned earlier, the assessment may very well not reflect today’s fair market value.

You see, this year’s apportionment is based on a three year average value of nearby properties, with values calculated as of January 1, 2008. This three year averaging is intended to mitigate the market flux and capture present fair market value but when the brakes went on, the double-digit appreciation most of the region’s real estate had enjoyed, the market jolted to an abrupt stop, then dropped. And we’ve been sensing market downturn on the commercial side since about July of 2007.

So, how do you appeal? You must file two copies of the appeal petition with the Board of Equalization/Appeals, which must be received by the board on or before July 1st of the assessment year, or within sixty (60) calendar days after the date of the value change notice (or other notice of determination) – whichever is later. The information that the board requires is laid out in the Board of Equalization FAQ page; this site has a good deal of information and is a great place to start. You can begin to compile evidence by contacting the Property Tax Advisor in the assessor’s office for information on how your property was valued. You may need to get information on recent sales at that time, but I would strongly recommend performing your own research. Public records in our area are reasonably easy to come by. One key aspect is to locate comparable properties in your neighborhood that match your property as closely as possible. An identical match is not required, but the fewer the differences, the stronger your argument.

The King County Board of Equalization is made up of seven appointed citizen members. Their decisions are based on the legally-required exercise of “equalizing” the assessed value with the market value standard. That’s today’s market value standard, not the roller coaster of three years past.

And there’s your edge – the comparables you submit in evidence can come from this year’s market and, with good supporting data, you should make your case. Published reports put appeals received from the King County Board of Equalization this year at 1,800 as opposed to 750 by this time last year, with the outcome: Over half the appeals resulted in lowered taxes.

Of course, if your property is complex or commercial, it would pay to get a certified, professional appraiser involved. At Lamb Hanson Lamb Appraisal Associates, we often work on ad valorem appeals for both residential and commercial property assessments. So check out the County Assessor’s resources and start investigating. And don’t forget – the clock is ticking!

More Information: (for local counties)

Assessor’s Office

• King County
• Pierce County
• Kitsap County
• Snohomish County
• Thurston County
• Skagit County

Board of Equalization/Appeals

• King County
• Pierce County
• Kitsap County
• Snohomish County
• Thurston County
• Skagit County

Taxpayer Appeal Petitions

• King County
• Pierce County
• Kitsap County
• Snohomish County
• Thurston County
• Skagit County

Washington State Board of Appeals

Taking that initial class at Discover U helped me rediscover a joy for learning. It awoke in me a long, lost hunger to learn new things. It was refreshing being back in the classroom after 10+ years, interacting with other students and meeting new people. I think it is a common experience for many adults in our culture where life after graduating from school becomes all about work, and any desire to learn new things disappears. At Discover U, I enrolled in another class, took another class, and another. I instantly became hooked on taking all kinds of classes from cooking to travel to exercise to career development classes. Rather quickly, I became a volunteer instructor at Discover U teaching my favorite hobby, volleyball, to beginners. I have taught now for the last 4 years, and it has been addictively fun and a wonderful blessing to see students learn how to play volleyball and play it well! Another class I took was an introduction to real estate appraisals, which was an entry point into a new career and preparation to obtain a license with the state of Washington. I definitely plan to take classes and teach classes throughout my life.

Why continuing education? One, for personal growth and enrichment. Learning of any capacity has many health benefits in life such as brain stimulation, stress reduction, alleviated boredom from routine and repetitiveness of everyday life, to counteract business, and to combat aging. Henry Ford, the famous American industrialist (1863-1947), said it best that, “Anyone who keeps learning stays young. A great thing in life is to keep your mind young!” I read an anonymous saying once that if you stop learning, you will stop growing, and if you stop growing, your mind will deteriorate quickly.

Secondly, for career growth and development. I began the process to obtain certification in my appraisal career. I have become an associate member at the Appraisal Institute, the leading membership association for real estate appraisers. AI offers classes nationwide and online for state license, certification, AI designation, and continuing education. These classes are taught by designated members who have years of experience in the appraisal profession. When I took my first AI class, I found it to be very thorough, informative, challenging, and well taught over 4 days in the classroom.

Sadly, Discover U went bankrupt and closed its doors in Belltown. Like the phoenix rising out of ashes, a new school was born offering free classes, on anything and everything, to the greater Seattle community. Seattle Free School is a school where everything is free. It’s free to take and teach classes. No money is exchanged nor are donations accepted. The school was founded by Jessica Dally. Jessica teaches classes herself, which reflects her diverse range of interests: from cheesemaking to soapmaking, to car maintenance and even beekeeping! In only six months, the school had over a thousand people signed up on its mailing list, and growing more by the minute. I taught a beginners’ volleyball class last summer. In the near future, I am teaching a class on investing in stocks for beginners. For classroom space, the school uses community centers and public libraries. Seattle Free School encourages anyone to teach even if one lacks any teaching experience. All that is needed is a volunteer heart to share knowledge and experiences with others! Elie Wiesel, the famous Noble Peace prize winner, said that, “What I receive I must pass on to others. The knowledge that I have acquired must not remain imprisoned in my brain. I owe it to many men and women to do something with it. I feel the need to pay back what was given to me. Call it gratitude.”

Here at Lamb Hanson Lamb Appraisal Associates, this giving spirit is embraced within the company where AI designated and senior appraisers are encouraged to take trainees under their wings to help them grow and advance in their appraisal careers.

The Historic Preservation Program started in the US with the passage of the National Historic Preservation act of 1966. To date, there are over 79,000 listed properties covered under the Act. The purpose of this Act was to create a means for the documentation, designation, and financial assistance necessary to save landmark properties from total extinction or destruction.

As time went on, the Federal government empowered local municipalities and authorities to create ordinances with standards and guidelines for incentives and the control of historic places and properties.

Thanks to the Advisory Council on Historic Preservation federal support was gained that resulted in the above named Tax Reform Act of 1966. This Act created economic incentives and disincentives, benefits, and penalties that included the beginning of investment tax credits.

Further incentive efforts resulted in the Economic Recovery act of 1981 which accelerated property depreciation and attracted large scale developers.

However, 1982 saw the tax credits base change from a 3 tier savings to only 2 tiers. One, the 25% investment tax credit for historic rehabilitation was reduced to 20% while the 15% and 20% credits for 30 and 40 year old non-historic buildings were combined into a single 10% credit for buildings built before 1936. The one year passive loss rule set at $7,000 to be used up annually now could only be applied against the tax on income generated by the projects themselves. (High-income taxpayers could not use the tax credit at all).

The overall savings and write offs on investment tax credits were forever changing and more and more individual funding again was being relied on.

The 1978 Urban Development Action Grant (UDAGS) allowed grants up to 50% of rehab costs. This changed and ITC’s now were only being applied at the local and state levels and allowed for economically feasible projects only.

The 1995 Historic Home Ownership Assistance act capped the housing tax credits from 20% of costs to $50,000 maximum. These credits however, could be transferred and could reduce interest on mortgages.

Other issues began to rise such as actual uses vs. economic uses, Eminent Domain, and Condemnation Authority conflicts, exemptions and/or tax freeze actions. Also, many properties became subject to the ability to achieve competitive market sales, a reasonable return on investment and a proportion of rent allocation to business income in order to meet eligibility requirements. More and more local, state, and federal authorities are requiring appraisals as the means for establishing eligibility, benefits and analysis of Investment Tax Credits and values for these Historic Properties.

One or all of the common approaches to value are typically used to identify value benefits to individual corporations or agencies who participate in these projects. The appeal, besides third party oversight, is that the appraisal or valuation process is an orderly program by which the problem is defined; the work necessary to solve the problem is planned, and the data involved is acquired, classified, analyzed, interpreted, and translated into an estimate of value.

Some of the available benefits and incentives are as follows:

1. Subsidized interest loans
2. Tax exempt bond financing
3. Mortgage guarantees
4. Relief from local sales tax, tax moratoriums, freezes and abatements
5. Assessment tax relief
6. Zoning and building code relief
7. Public purchase and private resale at low prices
8. Public/private joint ventures
9. Sale of Development Rights (Transferable Tax Credits)
10. Accelerated depreciation
11. Charitable Donations and Grants

Appraisers must thoroughly document what they are appraising and sometimes must be creative in their approaches. Incentives are created to benefit participants and can create added value. A $50,000 rehab grant in the Cost Approach may create additional return in the Income Approach. Restricting the building height of a historic property may mean analyzing land value by dividing the floor area by the existing building and comparing it to the potential floor area to find the difference in lost density dollars per square foot of land area. Relief from real estate taxes may well mean lower expenses and a higher NOI (net operating income) and a higher market value. Many times historic properties are tourist attractions and create substantial income advantages; all must be measured properly.

Of the 37 listed historic places in Seattle including properties in the Ballard District, Georgetown, Columbia City, Harvard-Belmont Capital Hill, Pike Place Market, the Stimson-Green house, the Arctic, Lyon and Hoge Buildings, Pioneer Square, The International District, and so on, listing them all, Lamb Hanson Lamb has appraised 14 properties.

Those who would like additional information on Historic Properties in Seattle may view the Preservation Advocate website at www.historicseattle.org, or call Christine Palmer at 206-622-5444 ext.226.

Biological Opinion Under ESA May Spell End of Floodplain Development in Washington State

In response to a 2004 federal court order,[1] NOAA Fisheries (the “Service”) recently released a biological opinion (“BiOp”) addressing the effects of the Federal Emergency Management Agency’s (“FEMA”) continued administration of the National Flood Insurance Program (“NFIP”) throughout the Puget Sound region (the “FEMA BiOp”).[2] In the FEMA BiOp, the Service determined that the NFIP jeopardizes several marine species listed under the Endangered Species Act (the “ESA”) and adversely affects or destroys their critical habitat. As a result, over 270 Puget Sound communities will soon receive guidance from FEMA explaining what they must do to avoid violating the ESA when authorizing floodplain development.[3] One way for local governments to comply with forthcoming directives would be a blanket building moratorium across 100-year floodplains. Such a prohibition would fundamentally alter the manner in which Washington cities and counties have managed floodplain development for the past half century.[4]
– (Jessica Ferrell, Martin Law Group)

The above is a direct quote from Ms. Jessica Ferrell (of Martin Law Group) as the lead paragraph from an article she wrote. I understand that she specializes in environmental law.

Regardless of your opinion as to how severely the Endangered Species Act (ESA) should be administered and applied, it is clear that this ruling will once again provide impetus for higher lot prices for new homes. Higher lot prices results directly in higher new home prices. Without going into the detail and proof of why, economic forces dictate that any increase in lot prices will result in an increase in a finished new home prices of about 3 times the lot value increase.

Why will this increase lot prices? Lots of reasons!

• There is a substantial amount of land in the region that lies in 100-year flood plains, including much of the land that is currently undeveloped.
• It will require developers to do more pre-approval studies, increasing production costs.
• It will reduce the inventory of available development (or re-development) land, as some of what would have otherwise been usable will be excluded from being used. This will increase raw or vacant land prices. Remember that our cities, towns, and counties have already limited the amount of development land by the dictates of the Growth Management Act (GMA) which requires that development be constrained to be within the politically drawn lines of Urban Growth Boundaries (UGB) in what is then designated as Urban Growth Areas (UGA). While planners made conscientious efforts to identify usable land inventory when establishing their UGAs, removing some of this land will cause many of the comprehensive plans to need reworked earlier than expected.
• It will require increases in infrastructure costs, particularly in storm water management infrastructure. More of the developable land will be dedicated to non-development use to accommodate stormwater management. This will decrease yield on the usable land, further reducing potential lot inventory.
• No doubt “mitigation” requirements will increase beyond stormwater management – which often means the paying of fees to various governments so that they can “provide remedies”. Unfortunately, this remedy is really nothing more than a tax, in effect, as the money goes into general funds and gets otherwise expended.
• It will lengthen the already time-consuming and costly entitlement process, adding to holding costs, thereby adding to production costs.

This is not a complete list, and may be just the start. What is important to understand (regardless of how strongly you embrace such regulations) is that it will increase the cost of production of new housing for everyone. But it won’t make the houses bigger or better. It may not even provide much benefit to the species that are endangered. Governmental agencies (regardless of lip service on the topic of “affordable housing”) rarely contain any kind of cost/benefit analysis.

One of the problems with taking things to extremes is that costs go up dramatically while the increment of benefit gets smaller and smaller. Just like auto pollution – the first 80% of improvement cost automakers and the car-buying public less than raising the degree of improvement from 80% to 90%. And 100% can never be achieved, regardless of cost. Just how far should we go, and at what cost?

The SRA designation is earned upon the successful completion of a graduate-level curriculum, which includes a written demonstration appraisal report or alternative and attaining 3,000 hours of qualifying experience requirements. Also, designees must abide by both the appraisal profession’s Uniform Standards of Professional Appraisal Practice (USPAP) and the Appraisal Institute’s Standards of Professional Practice and Code of Ethics.

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Privacy Policy. Every report done for a lender must have a reference to the company’s privacy policy in compliance with the Gramm-Leach-Bliley (GLB) Act. Our corporate policy is included in the company policy manual and also on our site, under Privacy Policy. The corporate policy, which is also mailed to our regular clients on an annual basis, shows the connection between the GLB Act requirements and USPAP confidentiality requirements and can be added to a report, or the more generic GLB compliance statement that was previously distributed can be used.

Exposure Time. With the current edition of USPAP, we are no longer required to comment on Marketing Time (prior to the Date of Value), but we still need to discuss appropriate Exposure Time in every appraisal report. Appraiser competency has been questioned and is found wanting when the Exposure Time comment is not specific to the assignment. Simply stating that “exposure time of 60-90 days is appropriate” is NOT adequate. The exposure time must be specific to the type of property (i.e. single family homes of 1,800 to 2,200 square feet or single family homes in the $XXX,000 to $XXX,000 price range) and the market area.

In Fannie Mae form reports, Fannie Mae guidelines require the “Date of Sale/Time” to show both the contract date AND the closing date for the sales comparables. However they will accept just the closing date but you must state in the comments which date you used and the source, e.g. “The date of sale shown in the comparison grid is the closing date as recorded by the county recorder.”

Also, in the Fannie Mae form reports, the Cost Approach, if developed, must include the ‘entrepreneurial profit’ as a line entry; Marshall & Swift does not include that in the Residential Cost Handbook.

Appraisers should also be aware that the Marshall & Swift cost factors are based on subdivision construction, where material can be staged and crafts-people can be easily shifted. The replacement cost for a single home in a developed plat requires “just-in-time” material delivery, because there is no space to store it for a week or two until it is needed, and coordination of workers’ schedules, so the builder does not have a $60/hr employee standing around waiting for someone else to finish their work. One insurance company has estimated that such timing adds at least 10% to the replacement costs for fire damaged properties.

Per the instructor of a recent continuing education class, the above are just some of the deficiencies in residential appraisal reports where appraisers are being shown to be incompetent before the court even considers the accuracy of the valuation. When the appraiser deviates from regulations (USPAP), policy statements (Fannie Mae guidelines) or textbooks (The Appraisal of Real Estate, 13th Edition), it does not matter to a court what “is typical in this market.”