Typically, when a property changes ownership, a new tax base is established. Since property taxes are paid at the same time every year, new property owners have to pay a “supplemental property tax” to cover the time from the close of escrow (purchase date) to the beginning of the fiscal year when property taxes are due for everyone. Usually the only time this “reassessment on transfer” rule doesn’t apply is when family members transfer the title of their property between them.
Anyway, the amount you, as the property owners, pay in taxes is based on the assessed value of your property and the tax rate for your area. The assessed value is based on the fair market value of your property (usually the purchase price) at the date of acquisition. Thanks to Proposition 13, increases for inflation are capped at two percent a year.
In rare cases, the assessed value of a property 1) does not match the purchase price and 2) is not a fair assessment. If this happens to you and the assessed value is not in your favor, it is essential to appeal the assessment to the Property Tax Appeals Board right away. If you wait and allow the base-year value to be established, it cannot be changed until the property changes owners again. This doesn’t mean you cannot appeal to have your property taxes adjusted later, but it does mean you cannot have the base-year value changed.
Here’s why this matters. If property values drop, you can have your home re-assessed and the fair market value adjusted downward, thereby reducing your property taxes. However, the original base-year value remains fixed and if the market heats up again, the County Assessor’s Office can increase the assessed value of your property back to the base-year value plus 2% per year from the date of purchase (which might be a big increase all at once). If, on the other hand, you appeal the base-year assessment immediately after you purchase the property, you can have the base-year value changed and the County cannot increase property taxes more than two percent a year from that base-year value.
Years ago, the Board of Supervisors served as the Appeals Board. Sadly for some property owners, the county supervisors didn’t know much about real estate and people did not always get a fair hearing. For example, I knew a guy who purchased a property at a public auction. Public auctions are not like foreclosure sales; at public auctions, there’s time for inspections, title insurance, and appraisals, so you know what you’re buying. The guy got a great deal, acquiring a property worth about $540,000 for $370,000. However, the Assessor’s Office valued the property at $1.6 million and on appeal, the value was only reduced to $1.4 million. He probably should have gone to court, but he didn’t and ended up paying about $11,000/year more than he should have until he brought the case back to the Appeals Board after the board was separated from the Board of Supervisors.
Today, the Appeals Board is made up of six citizens, most of whom have worked in the real estate business for many years. Members include real estate brokers, appraisers, and business people who have participated in many real estate transactions. As a member of this board, I can tell you these folks make decisions based on high personal integrity and broad knowledge of real estate.
The bottom line is this: if you purchase a property and the assessed value seems higher than it should, do not delay in appealing the decision. Do all you can to make sure your base-year assessment is fair and as low as possible. It has the potential to save you thousands of dollars.
If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery. Dick Selzer is a real estate broker who has been in the business for more than 40 years.