Since the real estate bust, many people have complained that they couldn’t buy, sell or refinance a home because an appraiser used bank-owned or short-sold homes as comparables in the valuation process, which dragged down the value of their home.
Their protests have grown so loud that in four states (excluding California), legislators have introduced bills that would prohibit appraisers from using distressed properties as comps. Although none went very far, a bill in Congress, HR1755, would do the same thing.
Now I’m hearing from people upset that they can’t get their property taxes reduced because their county assessor will not use a short-sale or bank-owned property as a comp.
James Reece of San Francisco says that when he refinanced his condo in November, it was appraised for $660,000. The appraiser used three condos as comps: One in his building that sold for $700,000 in May 2010, another in his building that sold for $620,000 in September 2010 and a similar one nearby that sold for $699,000 in October.
But when Reece got his property tax assessment for 2011-12, his condo was assessed at $700,000 – the same as the previous year. Reece thought it should be lower than $700,000 based on the appraisal done for his lender. He asked San Francisco County Assessor Phil Ting’s office to informally review his assessment and submitted the appraisal along with the three comps.
The first person he spoke to refused to review the application. Reece then asked for a supervisor, who said he was throwing out the $620,000 comp because “it probably was a short sale” and that “outliers” didn’t count, Reece says.
Reece says he was instructed to file a formal appeal with the appeals board.
Reece is wondering why appraisers for banks consider distressed sales as comps while county assessors do not.
The answer: In California, some assessors will consider distressed sales but it varies widely by county, neighborhood and house. In general, assessors will always look at non-distressed sales first and if there are enough, disregard bank-owned and short sales. But if there are not enough normal sales, or the home is in an area dominated by distressed sales, they will take these into account. It’s not always easy to identify distressed sales, and some assessors will do more digging to discover the nature of a sale than others.
Under Proposition 13, property is assessed upon a change in ownership at its fair market value. That is usually the same as the sale price, although “in the case of a foreclosure or other distressed sale, the sales price may not equal fair market value,” says Marin County Assessor Richard Benson.
In between changes of ownership, assessors can raise values only by an inflation rate (not to exceed 2 percent a year) plus the value of major improvements or additions.
Under Prop. 8, owners who think the market value of their property has fallen below its assessed value can ask for a temporary reduction to the fair market value.
Fair market value
Under state law, the “fair market value means the amount of cash or its equivalent that property would bring if exposed for sale in the open market under conditions in which neither the buyer nor seller can take advantage of the exigencies of the other,” says Alameda County Assessor Ron Thomsen.
Under the code, it doesn’t appear that distressed sales should be used as comparables because they involve exigencies or pressing needs, Thomsen says. In reality, Thomsen sometimes uses them, “especially if there are no verifiable comparables that are not short sales or foreclosures.”
Santa Clara County Assessor Larry Stone says “in normal times, a foreclosure was an aberration … and we would ignore it.” Today, “in areas where we don’t have a lot of foreclosures (such as Palo Alto or Los Altos Hills), we still ignore it.” In areas with a lot of foreclosures, such as the southern and eastern parts of the county, “it can’t be ignored.”
Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/08/31/BU1H1KUA2V.DTL#ixzz1XQgo1zcK