Low Price Is Not Low Worth?

The Daily Paper had one of those business page stories by Joe Estrella that left us scratching our heads Friday.
Seems a bank economist told legislators the Treasure Valley has an unsold inventory of 7,000 homes and it will take a 15% drop in prices to get the housing market back on track.

Since Idaho’s property tax is based on “fair market value” of property, it is logical to talk to the bank economist. He also said prices dropped 7% in November with the median home price at $215,000. Good so far.

Then, a blogger dude with a site called BUILDINGCREDIBILITY claims many previous loans were for more than the value of the property and owners are now “upside down.” This is a concern for all property owners, because the Ada Assessor uses those sales figures–in part–to establish “fair market value” for the rest of the folks on the block.

Here is where it gets scary. The top dude at the Ada County Association of realtors came up with this brilliant conclusion:

“A 15% price reduction is not a 15% reduction in the value of the house. It’s a reduction in what they’re getting for the house.” He has obviously dealt with too many “motivated buyers.”

It sounds laughable of course, but the data from realtors like the Ada realtor goes into the equation that ultimately determines the taxable value of our homes.

We need a mandatory reporting of actual sales prices of homes if Idaho is going to remain using the “fair market value.” Bonner and Kootenai counties are currently considering ordinances to accomplish that transparency in real estate transactions. About 46 other states require mandatory reporting.

Comments & Discussion

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  1. That Other Guy
    Jan 5, 2008, 9:30 am

    I might be wrong but the Ada County Assessor’s Office does have access to the MLS (multiple listing service) used by all realtors. They use this as another tool to help assess the value of the homes around the county in addition to the drive by photos they take once every five years. The MLS usually includes updated information on rennovations, backyard improvements and so forth.

    The MLS also publishes the final sale price of the homes listed. That’s how realtors find comps to price out a home to list.

    So Ada County has all this information to approximate fair market value… unfortunately they can only do this when a property sells and is listed on the MLS. Otherwise it is a crap shoot.

    How this affects a homeowner is simple. We recently sold a duplex in Boise to a friend and this year the property tax there almost doubled! The duplex hadn’t been listed or sold in over 30 years so all the increases in property taxes over the years were based only on the drive by photos. Sucks for the new owners who didn’t anticipate such a dramatic increase.

    EDITOR NOTE–Assessor does indeed have access to MLS–they pay for it. The GUARDIAN problem is that MLS members can post any figure they please as a “sales price” and it is in the best interest of the realtor to show as high a price as possible. Chances are your friend actually paid less than the appraised price, but got a loan higher than the sales price in order to have cash for fix up or other uses…happens all the time.

    “Rebates” are also common. Sales price and loan are for $100, but seller gives back $20. Meanwhile for comp purposes the taxes on the rest of the neighborhood are based on a $100 value that is really only $80.

  2. Blazing Saddle
    Jan 5, 2008, 3:10 pm

    Seems to me that looking for equity and fairness in the tax code is like looking for a virgin in the employ of a cat house. It is hard to find, it wasn’t the intent, and it won’t last long.

    All taxes are subjective to the extent that they are artificial constructs designed to charge for some things, but not others. And, the things that get taxed are totally dependent on the whim of the current political power structure.

    With income tax the general assumption is that persons who make lots of money should be charged more in taxes than people who make very little. This is called a progressive tax but it ignores people who are wealthy but not productive. And, In practice, it is routinely violated.

    Sales taxes are often criticized because they are not progressive. This problem is remedied, to a greater or lessor extent, by exempting certain classes of sales from taxation. Services and food are often not taxed. Persons who shop online or out of state routinely avoid paying this tax.

    However, property tax is probably the most troubled of the bunch. There is the question of purchase price that the Guardian rightly points out. The reported price often has little to do with actual price and even less to do with actual cost. (A $100,000 house may cost well over $300,000 when all the interest payments are added up.)

    There is also the question of what types of property gets taxed. Wealth in the form of cars, boats, RVs, land, and houses all get taxed. Wealth held in the form of money, gold bullion and other commodities, works of art, and a variety of other forms do not. So much for equity.

    There is the question of location. A structure built in the CCDC territory gets taxed at one rate. An identical structure built outside their territory gets a different rate.

    (EDITOR NOTE–Tax rate is the same, CCDC gets to keep it though)

    There is the question of relative ownership. For instance, few people buy homes outright. Usually, in the process of taking out a loan, they form a partnership with a bank. At the time of the sale, the bank purchases as much as 95% of the house while the “buyer” purchases as little as 5% of the house with the promise to buy out the bank’s portion over time. However, the “homeowner” gets stung for 100% of the property taxes while the bank pays a big fat zero. The “homeowner” may agree to the arrangement as part of the contract, but let us not call it equitable from a property ownership standpoint.

    The list goes on, but I think the point has been made. The whole structure is subjective. Any remedies will be as well. And, as soon as a new fix is put in place everyone will start looking for and exploiting the loopholes.

  3. The cute trick I have seen as a seller and as an escrow officer is where the listing agent, instead of dropping the price to account for repairs, replacement of carpet, etc. has them shown as credits to the buyer on the closing statement.

    So a house selling for $210,000 might only be worth $200,000 if sold as is. That’s a bad deal for both realtors, of course, since they are on percentage of sales price commissions. It only took me ten years or so to figure that out. The same is true on all the other gimmicks that builders offer to move houses, including cash back – none of these affect the sales price.

    And Ada County doesn’t want fair market value to fall for the same reason: greed.

  4. Can’t wait to see how this unfolds. However I think any idea of some kind of transparency in how county or state government works is asking a bit much in Idaho. Buyer beware and bait and switch are Idaho family values after all.

  5. So what do you bet we WILL NOT see a 7% reduction in our home values from the county?!

    There needs to be two laws:
    1. Taxes are based on the last sale of the house and only increase 1-3% until the next sale.
    2. If the market drops – as it has then the county must drop the values by the same amount.

    I guess we can dream – too bad those we elect to “serve us” are only willing to take our money and then thumb their noses at us as they spend it – and not have the integrity to do the right thing wheb they should not be taxing us as much as they do.

  6. It doesn’t seem to matter. The pols will set the budget and then adjust the mil rate to match. Whether all properties go up or down won’t matter. The problem is getting equity among properties, not the market as a whole.

  7. Eric is right. Basically, government determines what it needs (whether an increase or the same as the previous year, seldom a decrease) and then adjusts the rate (within constraints of the law) up or down as needed.

    Seems to me though the valuation of our properties did not go down last time there was a real estate slump in Ada county.

    Still though that was an odd statement to make when the value of almost anything in our economy is based one what someone will pay for it.

  8. The Guardian is onto something. The current problem with the Assessor using the MLS data as reported is two fold. First, MLS sale prices generally are the gross price which includes seller concessions for buyer costs to obtain loan, etc.

    I have heard of concessions which include substainal value in gift certicates to area stores, etc. Second, the Assessor office makes no attempt to verify the sale price to determine what the amount of any seller concessions. There is an appraisal term called “Cash Equivalent” which is an adjustment to arrive at a net sale price which is the number to determine full cash value.

    This is most important in a decling market and especially when the volume of sales have declined, leaving fewer sales to establish assessed values. The Assessor Office just needs to apply standard appraisal principles to determine accurate values and stop using unverified gross sale prices.

  9. Property is a sitting duck for tax collection. Having engaged the appeals process in Canyon County I have learned this is a fools errand. Even with comps and data the commissioner’s won’t budge. They use average per square foot sales data and apply it to your property and bingo…here is your new taxable value. Location, condition, and other factors have little influence from my experiences.

    It will be interesting to see if they use the same rationale on the downside. New homes are not moving and the resale properties are in the same boat in my neighborhood.

    The state legislature wants all of us property owners to shut up and keep paying for inflated values that we don’t get to share other than more property taxes. Property tax reform is not something that will get addressed this session from what I have been reading in the local paper. Even if they do something with the assessments they will screw with the levy rate to keep us paying more and more.

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