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

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

The same appears to be true now in California when it comes to the ease of getting an accurate property tax assessment.

For the third consecutive fiscal year, the real estate market has faltered— unprecedented since property tax reform took effect with Proposition 13 in 1978 — calling into question the values of homes and businesses for tax purposes.

Assessors are required to come up with accurate values, but state law does not dictate how, and the process varies wildly by county: it can be simple, or a contentious ordeal.

“A lot of it is reflective of how the office operates,” Jon Coupal, president of the Howard Jarvis Taxpayers Association, which advocated for Proposition 13, said of the state’s assessors.

Three years in, the different approaches of some assessors are emerging as mirrors of their communities: friendly in the suburbs, high tech in Silicon Valley, and in San Francisco — a city where a protest of some sort occurs nearly every day — cantankerous.

“It was very adversarial,” said David Zisser, who appealed the assessment of his Japantown condominium.

Mr. Zisser, a lawyer who spoke animatedly with his paperwork strewn across a table in the downtown Olympic Club, bought his home in 2005, near the height of the market, for $604,000. But in 2009, even after the housing market had collapsed, the San Francisco Assessor-Recorder’s Office placed its value at $653,000.

Mr. Zisser won his appeal — his 2009 assessment was revised to $572,000, then later lowered to $565,000 for 2010 — but he said the process took about 40 hours of work to research, file paperwork and shepherd his case through the system.

“Dragging people through this is ridiculous,” he said, noting that he is still waiting for refunds.

He is not alone: 6,600 assessment appeals were filed in 2009, and another 5,500 in 2010.

Phil Ting, the city’s assessor-recorder, who is also a candidate for mayor, said he hoped fewer than 5,000 property owners would appeal their 2011 assessments. Value estimates are being mailed this month.

Mr. Ting said he had been able to settle 80 percent of appeals without full hearings, which he considered an accomplishment given the size of the task. Property values throughout much of the city remain down from pre-recession highs, prompting many owners to seek reassessment.

“This is not a market correction.” Mr. Ting said. “This is like a U.S. economy correction.”

To cope with the situation, this year his office has proactively reduced the assessments on 18,841 of 200,000 total parcels in the city — eliminating the need for those owners to appeal.

But despite these efforts, Mr. Ting said that the antiquated computer system he inherited when he took office in 2005 was a hindrance. “Think of it as Fred Flintstone,” he said.

Those limitations mean that owners cannot see exactly how their properties’ values were determined until an appeal is well under way — a situation that creates contention and requires time-consuming efforts to find information elsewhere (frustrations I experienced firsthand when I appealed my assessment, and won).

“We would like to have a more transparent system,” Mr. Ting said, noting that his office has been working on improving the computer system.

By comparison, in Santa Clara County in Silicon Valley, as of this year homeowners can go online, enter a privacy code and see their account in detail, including the county’s math. Disagree with the result? An appeal can also be done online.

Larry Stone, the Santa Clara County assessor, said, “Each year we’re adding electronic functionality to do what we do.”

Mr. Stone said that since the new system was installed, the culmination of 15 years and millions spent on innovation, inquiries to his office had dropped by half.

In the Sacramento area, according to Mr. Coupal, the taxpayer advocate, reduction appeals were handled at amiable weekend workshops for property owners.

As in San Francisco, other counties have proactively reduced assessments in recognition of the downturn. In Santa Clara County, Mr. Stone said that this year 124,148 properties (one-third of the county’s total) were assessed below their purchase price.

“But they are not legally required to do so,” Mr. Coupal said of the proactive reductions. Ultimately, “the burden is on the property owner,” he pointed out.

In San Francisco, Mr. Zisser just received his latest assessment: up $15,000 to $580,000. He disagrees with that figure, but said appealing this time was not worth the grief.

“The city has made the process adversarial so people won’t go through it,” he said.

Scott James is an Emmy-winning television journalist and novelist who lives in San Francisco.

sjames@baycitizen.org

Article source: http://www.nytimes.com/2011/07/22/us/22bcjames.html