When you purchase a property, the Mendocino County Assessor’s Office determines the property’s assessed (or market) value for the purpose of establishing future property taxes. The initial assessment is critical because it establishes the basis for all future payments. Property taxes are calculated on the base year (first year) and cannot increase by more than two percent compounded per year.
Once this base value is established, if the property value falls below the original base year value, the assessor can lower the assessed value to reflect the current market value. But if prices take a big jump the following year, the original base value comes back into play, and the value can be increased by two percent per year from the original acquisition date and amount.
Usually, the assessor establishes the base year value at the purchase price, a reasonable approach. However, there are occasions when this approach isn’t appropriate. The assessor’s job is to equate the assessed value with the fair market value as of the closing date of the purchase. If you got a screaming hot deal, the assessor is obligated to assess the property at a value higher than the purchase price. In this case, the responsibility to justify a base value higher than the purchase price is squarely on the assessor’s shoulders.
Revenue and Tax Code 110 says, “For purposes of determining the ‘full cash value’ or ‘fair market value’ of real property, other than possessory interests, being appraised upon a purchase, ‘full cash value’ or ‘fair market value’ is the purchase price paid in the transaction unless it is established by a preponderance of the evidence that the real property would not have transferred for that purchase price in an open market transaction. It goes on to say, “This presumption may be overcome if the assessor establishes by a preponderance of the evidence that all or a portion of the value of those improvements is not reflected in that consideration.”
Clearly, the assessor has to do two things: use evidence to show that the sales price wasn’t fair market value, and then demonstrate what fair market value is. The method to determine fair market value is well established by appraisers, using comparable properties that have sold recently and making adjustments for the condition of the property in question.
Now, this can work in the opposite direction, too. Let’s say you overpaid for a property, perhaps this property was your childhood home, or maybe you want to be sure no one builds on the empty lot next door. In these cases, if you want to have the property assessed so you can pay taxes on a lower base value than the purchase price, the burden of proof is on your shoulders.
The most critical thing to remember is that the first year of assessed value will impact your taxes for as long as you own the property. Once the base year is established, doing home repairs should not impact the assessed value; however, improvements will. If you replace your roof with the same type of roof, that’s considered a repair. If you replace a flat, 1955 tar-and-gravel roof with a peaked composition shingle roof, that’s an improvement and can cause an increase in the assessed value. To the extent that the new roof is superior to the old, the assessed value can reflect that improvement.
The bottom line is this: if you honestly feel your assessed value is higher than fair market value, call the assessor’s office and explain your position; then ask them to lower the assessed value. If they don’t agree, don’t be afraid to appeal the decision. If you convince the appeals board you’re right, it could save you a lot of money.
If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.