How I Stopped Worrying and Learned to Love an Assessor
By Steven H. Berg, MAI, SRA
Nobody looks forward to the day that the tax bill comes, but it
happens, over and over. In Portsmouth, we are nearing the completion of a
revaluation, so taxation will be a major water cooler topic this summer. Due to
changes in state property tax laws, revaluations will strike us with greater
frequency. That is a good thing, which is the point of this article.
I should begin by explaining how each city and town determines the amount of your property tax bill. First, the town determines exactly how much money it will cost to run the town in the next year. That’s the budget. Next, they take the total value of all of the real estate in town (the “tax base”) and divide it into the budget. So, if it is going to cost $60 million dollars to run the town next year, and the total value of all of the real estate is $1.5 billion, each taxpayer would be assessed $25.00 for each $1,000 worth of real estate that they own. It certainly is fair and it is a simple as it sounds.
In fact, it is very fair, as long as everyone’s assessment is
equal to market value (or is in the same ratio to market value.) If 100% of the
properties in town are assessed for 90% of their market value, it is a very
fair system, though this does not happen often. Not only do real estate prices
fluctuate, different property types fluctuate at different rates. In the
Seacoast, the most affordable homes are among those that have risen at the
fastest rates. Also, different neighborhoods may fluctuate at different rates.
For example, the construction of a new school may increase the value of the
homes closest to it, but have no impact on the rest of the homes in town.
Conversely, the construction of a noisy smelly factory could lower the values
of the closest homes, but not those on the other side of town. Finally, wear
and tear impacts properties differently; two homes may have once been
identical. But, over time, one owner may have completely renovated the inside,
while the other never even dusted. Driving by, they may look the same, but
their values are certainly different.
If the tax base is not kept current, the allocation between each
property owner becomes unequal. If assessed values are not kept up to date, it
becomes unfair to simply total up every body’s property value. To solve this
problem, the Universe gave us the revaluation. A revaluation is the periodic
process of recalculating the value of every property. So now, if your house is
worth one half the value of your brother-in-law the lawyer’s house, you will be
paying one half as much tax. Or, if your neighbor added a deck, he will now pay
a little more. Remember, fair is good! In fact, if your assessment changes
every year or two, that’s great! Regular updates mean somebody is staying on
top of things to make sure the system stays fair. Since property values change
all the time, they should be updated regularly. You should think of a
revaluation simply as a rebalancing.
But let’s be realistic, the term “fair” has come to mean:
“everybody else’s tax can go up… just not mine”. That’s not possible;
therefore, we have always done the next best thing: We postpone revaluations
until the balance is so skewed that the Assessor is guaranteed to be the most
vilified individual in the community, simply by righting a wrong. It is sad,
but true.
Revaluations cost money and invariably upset a portion of the
community. Therefore, we wait until it will be even more costly, and upset even
more people. Ah, to “Live Free or Die.” By the way, the phenomenon is a New
Hampshire thing; most states require periodic revaluations. No, this is not
because of a massive, outspoken revaluation lobby. Rather, it is because most
states know that regular updates are the most equitable answer to the difficult
question of equitable taxation. We have developed a system in New Hampshire
where the Tax Assessor is viewed with the same contempt as the Imperial Tax
Collector. In reality, the opposite is true: as taxpayers, we want a good
Assessor to protect us from inequity. As a rule, the Assessor is on our side!
Changes in state law will require more regular updates, so the system is
getting better. But still, you can’t fault the system or its oracle, the
Assessor, for simply being fair.
Our economy has been so strong over the past five or so years,
that you can be pretty sure that the next round of revaluations in the region
will result in an increase in your assessment. Your assessment could even
skyrocket. That does not mean your taxes will also rise. Remember, the total of
everybody’s tax bill is simply the total municipal budget divided by the total
value of all of the property in town.
Portsmouth is nearing the completion of its revaluation so it
provides a good example: According to the State Department of Revenue, during
2001, Portsmouth’s assessments averaged 51% of actual market value. Therefore,
if Portsmouth’s revaluation is done correctly, the assessed value of every
property, on average, will double. Suppose the City’s budget makers determine
that 6% more money is needed to run Portsmouth next year. If you have been
assessed fairly since the last revaluation, your tax bill will go up 6% even
though your assessed value may double. See how this works?
Yes, there were two caveats hidden in the last paragraph: First
was whether the revaluation is “done correctly”. Mistakes can happen. There are
plenty of safeguards for taxpayers to remedy any errors that may occur, so you
can rest easy there too (these safeguards are the topic of my next article).
The second is the assumption that “you had been assessed fairly”. If your
assessment was too low, relative to other properties, you have received a
benefit that was unfair to the other taxpayers and it is about to be corrected.
I realize this is upsetting, but you can not really complain, it’s fair!
Frankly, if you own multifamily property, a “starter” home, a high priced home,
or a condominium, you probably fall into this group; sorry, but if revaluations
occurred more often, the blow would have been considerably softer. These
property types have appreciated much faster than most other types. Therefore,
in this year’s rebalancing, the owners of these properties will see their tax
bill rise.
You want your assessment to mirror the value of the property you own. Our last revaluation was in 1994. At that time, a typical three bedroom ranch in Portsmouth sold for roughly $109,000; last year, that same home, on average, exceeded $180,000! But, in the end, the taxes you pay fluctuate with your municipality’s budget and not the value of your home. In the same time frame when home values in Portsmouth have risen at a rate of 16% per year, our tax bill has only increased by about 4% each year. Before you go marching upstairs to yell at the pencil pushers, remember too that the tax rate has a municipal portion, a school portion, a county portion and a state portion. If one of them shows an unreasonable increase, ask why, get involved and make sure you are heard. Bottom-line: If the assessed value of your property is pretty close to what you could get if you sold it, you have no beef with the Assessor’s office.
Steven H. Berg, MAI, SRA lives in Portsmouth and is the owner of Sargent
Consulting, Ltd. He is a graduate of Connecticut College, where he earned a
Bachelor of Arts degree, cum laude, majoring in economics and sociology. Steven
has been appraising a variety of property types in New Hampshire’s Seacoast
area since 1987. He specializes in providing consulting services and litigation
support and has amassed considerable classroom education on a wide range of
related topics. Steven is both a residential and general member of the
Appraisal Institute. In addition, he is a member of the Portsmouth Housing
Endowment Fund Advisory Committee, is on the board of The Portsmouth Economic
Development Loan Program and serves on an advisory panel to the City’s
Assessing Office.