Want Lower Taxes?

Posted by Dave Fratello on Tuesday, March 25th, 2008 at 3:49am.

To paraphrase Mark Twain, there are only three things that are certain in a real estate downturn: foreclosures, bank failures and declining property tax bills.

The LA County Assessor, Rick Auerbach, has seen beyond the horizon. He knows he's going to be flooded soon with requests for re-assessments (and lower property tax bills), given all the headlines about the RE market's rapid crash in the county. So he's offering to do the work himself first, lowering property tax bills en masse before the requests start pouring in.

In print, on radio and TV – and on the internet – the assessor is trying to get the message out and tell homeowners: Don't bother us, we'll take care of you, it'll be fine – you'll pay less, just let us do our work. (Click to download the Assessor's press release.)

Re-assessments? Lower taxes? Where do I get mine?

Let's back up a moment for a refresher on California's property tax laws to understand what the Assessor is up to.

In their wisdom, the voters of California cut themselves a great deal in the 1970s. Via ballot initiative, the voters ended routine re-assessments of homes – and with them, routinely increasing property tax bills. Voters also capped the property tax rate at 1% and limited the annual increase in homes' assessed values to 2%. Homes would only be assessed at market rates when purchased.

Get that: 2% per year – below the annual rate of consumer price inflation, and below the average long-term rate of home price appreciation as well.

That was a good deal, but the voters also gave themselves a bonus: If the market value of your home drops, you can get your property tax bill reduced. So how about that?!? If the market value goes up substantially, you sit tight and pay very little more in taxes. If the value goes down, you might save on taxes by getting your home re-assessed.

That brings us back to the present day. Home values are now going down. So the Assessor is going to reevaluate over 300,000 properties in the county and reduce property tax bills where necessary.

What Auerbach & Co. are looking for is recent purchases that already aren't worth what was paid during the boom years.

How do they define boom years? At first they assumed it would be purchases from 2005-2007 that might merit a downward revision. After some sampling, they realized that they needed to go back to 2004. (Translation: The downturn is already worse than the county tax assessor realized – there are homes in the county that are now worth less than their purchase prices from 2004.)

Auerbach & Co. have now decided to look at all homes purchased between July 1, 2004-June 30, 2007. That's 310,000 homes. If you purchased your home during that period, the assessor's geeks are working on it.

If they determine that your home was worth less on Jan. 1, 2008, than at the time of purchase – plus 2% annual increases – the assessed value will be cut along with your property tax bill. So far, 60% of the 67,000 homes examined have qualified for a reduction.

If you're a homeowner who bought after July 1, 2004, it seems best to wait for the notice in the mail this summer (by June 30) and see if you like the Assessor's work. If not, you'll still have 6 months to appeal for a further reduction.

Anyone can, at any time, file a "Decline-in-Value Reassessment Application" to seek an adjustment in the assessed value of a property. (Click title to download the 1-page form.) You don't even need to support your case with data, but it's better if you do. The form asks for you to list 2 recent comparable sales "that sold as close to January 1, 2008, as possible."

In our local market in Manhattan Beach, sale prices have only begun to decline recently, and there's plenty of statistical noise, like high-dollar sales in highly desirable areas.

Recent home buyers might be encouraged, however, by the Assessor's focus on sales near January 1, 2008.

The current MB Market Update spreadsheets (click to download) show that several sales in late 2007 and early 2008 were discounted significantly. Based on PPSF and other factors, you can see that the data that the assessor's geeks will be working from will reflect one of the softer periods in this market in some time.

Hence, the geeks might be more inclined to cut some local tax bills. And if they don't cut your bill enough, you can always appeal.

It's true that, in MB, we're not talking about a lot of people getting big tax cuts. Not yet. It's early. We'll be late to the tax-cut party.

But if they're already looking at 2004 purchases, how far back might the assessor's team be looking in 2009 and 2010?
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