The uneven recovery of the Bay Area real estate market over the past year has created opportunities for real estate owners to challenge their property tax assessments. Areas that have experienced the strongest growth, as well as markets in which the recovery is lagging, may be ripe for challenges to property tax assessments.

Pregnant propositions

Under California’s Proposition 13, property taxes are based on the purchase price paid for a property or on the cost of constructing the property. Thereafter, Proposition 13 caps value increases (and property tax increases) at 2 percent annually.

When property values decline, Proposition 8, the bookend to Proposition 13, requires county assessors to reduce taxable property values below Proposition 13 value caps to reflect current market conditions. As real estate values recover following a downturn, assessors restore taxable values back to Proposition 13 levels.

Over the past year or so, core Bay Area markets (primarily San Francisco and the Silicon Valley) have experienced strong growth in market rents and declines in capitalization rates, particularly as compared to other Bay Area real estate markets. Because of the brisk recovery in core markets, county assessors have aggressively moved to restore 2012 values, determined as of Jan. 1, 2012, back to Proposition 13 levels. Such value restorations can bring major increases in assessments and taxes.

Assessors exercise value judgment

In order to restore property values to Proposition 13 levels, California requires county assessors to evaluate market sales and rental information. In so doing, assessors consider ranges of information on sales and rentals, and exercise their judgment as to whether values should fall in the top, middle or bottom of a range.

While assessors generally determine values for residential properties using computerized mass appraisal techniques, commercial properties tend to be more complex and require individual attention by assessor staff.

This year, the assessors in San Francisco and Santa Clara County have restored property values and assessments to levels at or near Proposition 13 amounts, which, in some cases, has dramatically increased tax bills as compared to 2011. In doing so, assessors may have justified assessments using more recent rental rates or cap rates, rather than using average rates during the 12 months prior to Jan. 1, which tends to accelerate value increases.

In 2012, most Bay Area counties announced increases in their property tax rolls.

The 2012 roll increases are due, at least in part, to increasing sales and leasing activity, which tend to be reflected in higher property tax values and assessments. However, these increases also reflect Proposition 13 value restorations described previously, and highlight those counties which merit increased consideration as far as whether to review and appeal property tax assessments.

Property tax appeal opportunities

The current situation presents several types of property tax appeal opportunities. First, for properties in San Francisco, San Mateo and Santa Clara counties, it is possible that assessors have been overly aggressive in restoring values to Proposition 13 levels. Taxpayers should request backup information supporting full or partial restoration of Proposition 13 levels and if the assumptions appear excessive, file an appeal.

This same advice goes for properties in secondary and tertiary markets, particularly where there have been Proposition 13 value restorations. Properties in these markets should also be reviewed, however, to determine whether they have participated in the economic recovery that San Francisco and the Silicon Valley have experienced. Economic recovery among Bay Area counties has been uneven, and hasn’t benefited every city within a county consistently.

In San Mateo County, for example, property values in Atherton have increased significantly, but values in East Palo Alto have continued to decline. Similarly, in Contra Costa County, values in five cities increased while in the county’s remaining 14 cities values generally declined.

Finally, property owners should not assume that a “no change” assessment or that a lower assessment by the local assessor is correct. Values in some areas declined during 2011, which means that market values as of Jan. 1, 2012 may be lower than 2011 values, and should not reflect value increases that have occurred during the first nine months of 2012.

Cris K. O’Neall specializes in property and local tax matters as a partner in the law firm of Cahill, Davis O’Neall LLP, the California member of American Property Tax Counsel, the national affiliation of property tax attorneys.

Article source: http://www.nuwireinvestor.com/articles/bay-area-homeowners-appeal-tax-assessments-59956.aspx

Meanwhile, a separate report showed the number of underwater homes in the nine Bay Area counties slowly subsiding as values rise.

“It is starting to come back, there is no question,” Ting said. “San Francisco remains probably the strongest real estate market in the state.”

Throughout the housing downturn, San Francisco was a Teflon-coated county compared with the rest of California, with more moderate declines in real estate values than elsewhere. It was the only county in California that never saw its overall tax roll shrink during the downturn. For the 2012-13 tax year, the assessed values in San Francisco grew 4.17 percent, or $6 billion.

Commercial properties led the growth surge, particularly in emerging areas for biotech and technology firms: Mission Bay, the South of Market portion of the Financial District, and the Inner Mission.

“Even during this very challenging recession, we’re seeing (strength in) those markets driven by industries like life science, biotech and health care as well as tech companies,” Ting said.

Under Proposition 13, properties are reassessed by more than the annual 2 percent limit when they change hands, undergo significant renovation or are newly built. All three factors were at play in the surge in values in areas such as SoMa and Mission Bay.

Residential recovery

On the residential side, the recovery is more checkered, with weak areas particularly in the southeast and western parts of town.

Proposition 8, passed in 1978, lets assessments temporarily drop to match lower property values. Around the city, 15,811 properties got such reductions this year, averaging $175,980 in reduced value per home.

Ironically, Mission Bay, South Beach and South of Market – home to lots of new condos – were among the residential areas with the most Prop. 8 reductions, despite their boom on the commercial side.

“That whole cluster was heavily impacted and had the biggest overall declines in roll value,” Ting said. “They had a significant amount of new building, which created a bit of temporary oversupply.”

Lower-income areas, such as Bayview and Excelsior, continue to struggle.

“Those generally have been the softest real estate markets over the past couple of years,” Ting said. “They are entry points for the first-time home buyers. They were the first to show softness and the last to show strength.”

Meanwhile, perennially popular – and pricey – neighborhoods such as Pacific Heights, Noe Valley and Russian Hill saw assessed values rising.

“Areas that traditionally have been in high demand remain fairly strong,” Ting said.

Overall, Ting said, “I feel our recessionary recovery is U-shaped. We’ve definitely stabilized. It doesn’t feel like it’s jumping back in a sharp V shape the way it did in 2004 or 2005.”

Frothy market

Assessments look at property values as of Jan. 1, so this year’s exceptionally frothy real estate market is not yet factored in. But a report from real estate service Zillow showed that rising home values decreased the percentage of underwater properties between the first quarter and second quarter.

“It’s good news that negative equity is dropping, but we expect the overall recovery to be fairly slow,” said Stan Humphries, Zillow chief economist. “We are now mostly at bottom in most markets.”

Alameda and Contra Costa counties – two of the hardest-hit areas locally – saw significant changes in negative equity, which went from 33.8 percent of mortgaged homes in Alameda to 30.9, and from 42.8 percent in Contra Costa to 40.1.

“Besides a very healthy appreciation in home values, the high pace of foreclosure activity is also pushing negative equity down” in those counties, Humphries said.

That’s because once underwater homes are repossessed by banks and resold at lower prices, the new owners start out with equity through their down payments.

San Francisco stands out for having a relatively small pool of underwater homes.

“The big driver is that home values there are down just over 12 percent from their peak,” Humphries said. “That’s a very modest decline, which leads to a very low rate of negative equity.”

By comparison, Alameda values are down 37 percent from peak, Contra Costa almost 51 percent and Solano County almost 60 percent, he said.

Negative equity slowly subsides

The percentage of underwater homes, with mortgages larger than the value, decreased in every Bay Area county between the first and second quarters of this year.

Source: Zillow.com

Where home prices are rising

These neighborhoods saw the biggest increase in total assessments, which look at the values of all properties as of Jan. 1.

Source: San Francisco Assessor’s Office

Carolyn Said is a San Francisco Chronicle staff writer. E-mail: csaid@sfchronicle.com

Article source: http://www.sfgate.com/business/article/SF-property-values-rebounding-3814168.php

Still, area assessors pointed out that results were mixed. In some counties, most growth in assessments came from the annual 2 percent increase for inflation allowed under Proposition 13. In all counties, thousands of properties were worth less than their previous assessed value – the purchase price plus inflation – because 1978′s Proposition 8 lets the assessment temporarily drop to match the fallen property value.

“Remember, property values plummeted so low that we haven’t come close to making up the losses we’ve experienced,” said Jean Hurst, legislative representative for the California State Association of Counties. “This is no windfall by any means, but it’s a function of the stabilization and the gradual uptick that economists tell us the recovery will look like.”

San Francisco, Santa Clara and San Mateo counties had the biggest increases in the Bay Area, and among the biggest in the state.

“We are clearly on the way back up,” said San Francisco Assessor Phil Ting, noting that it is the only county in the state that never experienced a downturn in its property tax roll over the past few years. “We believe this is probably the last year that many homeowners will be getting a reduction (of assessed value) because the market is coming back.”

Silicon Valley growth

Both San Mateo and Santa Clara counties said they benefited from Silicon Valley firms’ expansion.

“The resurgence here is being led by business,” said Larry Stone, assessor for Santa Clara County, where the overall roll was up 3.25 percent. “The office market is on fire. As spaces lease up, they begin to build out the insides.”

Once businesses lease space and add staff, they buy equipment. That was apparent in both counties as the category of “business personal property,” which includes machinery, computers and fixtures, rose 6.48 percent in Santa Clara County and 5.45 percent in San Mateo.

Still, both counties had tens of thousands of homes that were assessed lower.

“It appears we’re gradually pulling out of the slump,” said Mark Church, assessor of San Mateo County, where the roll rose by 3.33 percent. “We’re moving in the right direction, but we’re not there yet.”

Property tax revenue is split among schools, counties, cities and special assessment districts. The plunge in real estate values resulted in an even tighter budget crunch for those entities.

This year, after three years of minimal or negative growth, Santa Clara County, with the biggest roll in the Bay Area – reflecting the value of Silicon Valley businesses and affluent residential communities – saw an extra $9.7 billion in assessed value. At a 1 percent tax rate, that translates to $97 million more in tax revenue.

But in Solano, the worst-performing Bay Area county, the roll was down by 3.12 percent or $1.22 billion, meaning $12.2 million less in tax revenue.

Wide disparities were evident even within a single county.

Take San Mateo, for instance. Atherton, where the cheapest house for sale is asking $1.595 million, saw assessed values rise more than 9 percent, but in East Palo Alto, where many home values hover around $300,000, the assessments were down 2 percent.

“We’re seeing sharp contrasts between the high-end locations and the entry-level locations,” Church said.

East Bay moderate

In East Bay counties, increases were more moderate.

Alameda County was up 2.14 percent, just a tad ahead of the inflationary increase. “It’s going to take a long time” to fully recover from the downturn, said Brian Hitomi, chief deputy assessor.

Contra Costa’s 0.86 percent growth was largely due to an appeals board decision that increased the value of Chevron’s Richmond refinery for 2007, 2008 and 2009. The tax bump for all three years is reflected in the 2012-13 roll.

“It’s a one-time thing,” said assessor Gus Kramer. “Anyone who hangs their hat on that economically going forward is a fool.”

Contra Costa’s real estate market is basically flat, he said.

“The market is bouncing on the bottom and trying to recover,” he said. “There are some areas that are pretty healthy,” such as the affluent communities of Danville, Lafayette, Moraga and Orinda.

Likewise, the North Bay was fairly stagnant, other than Solano County’s 3.12 percent decline. With towns like Vallejo ravaged by the foreclosure crisis, Solano reduced assessments for more than half of all properties. Since 2007, its roll has fallen by 17.16 percent or $7.849 billon.

Napa County saw a 2.06 percent rise, “mostly due to the inflationary increase,” said Steve Schellhamer, assistant assessor. “Although it’s positive, it would be premature at this point to declare that we’re out of the slump.”

Marin nearly flat

Marin County’s assessed roll nudged up just 0.82 percent.

“The good news is that we don’t see things going dramatically south anymore,” said Assessor Rich Benson. “I don’t think it’s time to say that the market has turned around yet, but we’re seeing some positive indicators.”

He and other assessors pointed out that home sales have been robust throughout the spring. Since assessments for the 2012-13 tax year look at values as of Jan. 1, 2012, those stronger sales aren’t yet factored in.

Sonoma County, which got an extension to close its roll in late July, expects it to be flat.

“I hope we’re close to the bottom,” said Bill Rousseau, chief deputy assessor.

Property tax assessments slowly rise

For the 2012-13 tax year, property tax rolls in most Bay Area counties edged up, even while thousands of homes still had assessments temporarily reduced because their values had declined. Assessments consider value as of Jan. 1, so the recent surge in the real estate market is not yet reflected.

{+1} In billions

{+2} Under Proposition 8, passed in 1978, properties are temporarily assessed lower when their market value falls below their previously assessed value – the purchase price plus an annual increase of 2% or the California Consumer Price Index, whichever is less. When the market rebounds, properties can be reassessed to this “factored base year value.”

{+3} Sonoma County numbers are estimates; roll will close in late July.

Source: County assessors

Carolyn Said is a San Francisco Chronicle staff writer. E-mail: csaid@sfchronicle.com

Article source: http://www.sfgate.com/business/article/Property-tax-assessments-gradually-bouncing-back-3690479.php

San Mateo County homes suffering from what is known as negative equity rose to 17.5 percent in the first quarter of this year as compared to 11 percent last year, Zillow.com reported. The change, driven by falling property values, reflected trends seen at the local, state and even national level.

For data on homes in negative equity by county and foreclosures by city, click on the photo to the right.

The numbers could signal another wave of foreclosures in the making. For residents with homes in negative equity, the options can often come down to either seeking a short sale, meaning a sale for less than the mortgage value of the house — or walking away and letting it fall into foreclosure, said Arton Chau, General Manager of Burlingame-based Home Buyers Alliance.

Chau, who specializes in negotiating short sales, says his clients are either encountering severe economic stress that renders them unable to make payments, or they can make payments but have found it makes more financial sense to let the underwater home go.

“For me, it’s really about getting them out of this difficult situation,” Chau said.

For communities like Daly City, already hit hard by the foreclosure crisis of recent years, the numbers could mean more bad news to come. The city had 791 foreclosed homes this January, down from 884 the previous year but still the highest number in the county.

“The foreclosures are absolute disasters,” said Daly City Councilman David Canepa. “These are the people who have been the fabric of our society. I saw the data, and it doesn’t look like it’s getting any better.”

Canepa said that foreclosures and negative equity impact the city’s source revenue of property tax, as well as the community as a whole. Though a renter himself, Canepa can’t escape the anguish of people losing their homes as he receives about two calls a month from people asking for help.

“It’s heartbreaking, these people are pouring their hearts out. We all got steamrolled by this economy.”

County Supervisor and Daly City native Adrienne Tissier said she began hosting foreclosure workshops three years ago when the first foreclosure wave hit.

“Everyone is talking about the economy coming back a little bit, but the foreclosure issue is still very, very real,” she said.

Tissier’s workshops aim to both help those who are battling foreclosures and those preparing for life after losing their home.

“My hope is if I help at least one person, that’s one more person that isn’t on the street,” she said.

The trend toward increased negative equity was not limited to San Mateo County. In San Francisco, the percentage of underwater homes rose from 8.4 percent this time last year to 21.8 percent, while Bay Area-wide it increased to 25.7 percent from last year’s 22.4 percent mark.

National and state negative equities were also up with the national numbers climbing to 28.4 percent from 22.2 percent last year, and California recording 32.2 percent, up from 28.7 percent.

aterrazas@sfexaminer.com

Article source: http://www.sfexaminer.com/local/bay-area/2011/05/spread-underwater-foreclosures-feared-san-mateo-county