Attack of the Killer Assessments

It was a warm & lovely summer evening… Our hapless hero goes through his nightly ritual of sorting the junk mail from the bills when stumbles upon his annual “Official property value notice” post card from the King County Assessor.

Before I actually looked at the card, I thought, this shouldn’t be too bad. The local real estate market has cooled down a lot in the past year. My appraised value should be flat (maybe even lower). Zillow thinks my house’s value has fallen by about 10% this past year. Cyberhomes thinks it’s fallen by about 9%. Eppraisal & doesn’t give me a historical chart, but their value ranges are realistic.

So I gaze upon my white post card of doom and see the following numbers…













I then think, WTF? Why in the world has my land value gone up nearly 90%? Why is my total property value 10% higher than last year, despite the fact we are in a down market? Is the assessor catching up to the market? Did the assessor really blow it this badly in years past? Is this a work of comedy & horror to rival the cult classic of good garden vegetables gone bad?

So, I call the King County Assessor’s office, and they explain to me that the market sells it as one piece, but the assessor must value the land as if it were vacant. After the land value is determined, they determine the total value of the property. Then the land’s worth is subtracted from the total and the remainder becomes the value of the house. They tell me where to go to view the area report for the Issaquah Highlands if I want find out more about how they determined my property’s value.

I read the report and discover that the base land value of single family home in the Issaquah Highlands is $240,000 and that the appraised land value for Area 75 is about 56.7% higher than it was last year. OK, but it still doesn’t explain why my land value is nearly 90% higher than last year. Unless weeds are considered a land improvement or the definition of a square foot has changed in the past year, I still have no idea how they came up with that figure.

I usually read the Seattle Times, not the Seattle PI, so I didn’t see this coming! However, it’s nice to know, I’m that the only one confused about the crazy assessments this year. I haven’t decided if I’m going to get out my pitchfork and storm the assessor’s office yet, but I do feel the need to understand how they came up with their numbers. I’m sure it doesn’t help that Probably & Statistics for Engineers, wasn’t among the classes at school that improved my GPA when I was going to Cal Poly.

And if any program managers from Zillow are reading this blog post – there has to be a cool new feature idea in this experience somewhere. Your web site is very useful helping me buy or sell a home, but I really have no idea if land values really are what the county says they are. Besides, I pay property taxes on a twice a year basis, but I’ve only sold a home once in the past 10 years. Every time somebody’s assessment changes you could get more site traffic. Why can’t generating a Z-assessment petition be as easy as getting a Z-estimate? Just saying, there’s an opportunity here…

42 thoughts on “Attack of the Killer Assessments

  1. They contradict themselves:

    “The market sells it as one piece,” Roe said. “They don’t look at it separately as land and house. But by law, we have to split it out.”

    Indeed, state law says, the assessor must value the land as if it were vacant. After the land value is determined, the assessor determines the total value of the property. Then the land’s worth is subtracted from the total and the remainder becomes the value of the building.

    If that is the statutory requirement that they follow, then the total is determined by the market (which implies that sales prices have risen ~10% in the past year), and that vacant land has increased 90%. I don’t see much support for either claim in the real marketplace.

    A more likely explanation is that with more challenges coming from commercial owners, and revenues falling, they’re under pressure to cut things closer, and the previous valuations were significantly under market. The question isn’t was last year’s valuation correct, but is this year’s correct? Last year’s was probably way below market, and this year’s is only a little below market.

  2. A couple of things. First, you need to determine the month that the assessor determines value off of. If it’s January of each year, the mean and median for King County SFR was higher in January, 2008 than January 2009. So you wouldn’t see a decline. I don’t know what month they use, but unless it’s March, April, May, June or July, the numbers would show an increase from 2007 (but not as large as what yours suggests, but many areas have done better than average).

    Second, I think you’re missing the point of the P-I link you posted. Tax rates are determined by dividing the revenues to be brought in by the total assessments for the county. Thus, if revenues are to go up 1%, and everyones assessment went up 10%, the tax everyone pays would go up 1%, not 10%. The article you linked pointed out that by lowering the burden of proof, expensive commercial properties are more likely to appeal, and get their values reduced. To the extent that happens more for commercial properties than SFR properties, the tax burden will shift to individuals with SFR properties.

  3. Mortgage Sampson–I don’t believe delinquent taxes results in a raise in the tax rate. Those taxes will 99.999999% of the time be paid eventually with interest, because they get first priority ahead of the mortgages. There are some unusual situations where that doesn’t happen, but those are very rare.

  4. what i dont undersand is why you are suprised simple:
    county need more money, county raise value, county get mo money mo money mo money, hello?

  5. BTW, here’s a link to a piece Aubrey did over at the P-I explaining the real estate tax system:

    Here’s a link to a blog piece he did, following up, called: “Banging . . . . Head . . .. Against . . . .Wall” 😀 because people didn’t get it:

    The “Sound Offs” to the article are almost comical, because hardly anyone seems to got it, which is what resulted in the blog piece:

  6. “Last year’s was probably way below market, and this year’s is only a little below market.”

    Huge generalization coming (warning).

    In 2004 the majority of homes sold for 1.3 times assessed value. That’s Seattle, Eastside, no view consideration or status area boost.

    Recently, based on 2008 assessed values, the majority are selling for 1.17 times assessed value. Again, no big view considerations or mega improvements and no fixers.

    So tax values are catching up to market value. Look at the sales in your area and see how close the sold price is to the tax assessed value. If you see a bunch of stuff selling for less than assessed value (not including short sales and fixers), then the assessment went too far.

    If everything in decent shape is still selling for more than assessed value, then the County can’t be too far off.

    If they increase by .17% and they were selling at 1.17 times assessed value in 2008, then it may even out.

    When you start seeing the norm of sold price to assessed value being .95…well then they went a little too far.

    Redmond is still selling at around 1.2 times assessed value for decent property and location without upgrades on a mid-nineties built property.

    Go find the most recent sold home in your neighborhood and compare its sold price to its assessed value. Let’s do Robbie’s Neighborhood 🙂

    1) Mr. Assessed @ $588,000 sold for $710,000 (Apr 08)
    2) Mr. Assessed @ $555,000 sold for $670,000 (Jan 08)
    3) Mr. Assessed @ $495,000 sold for $627,500 (Feb 08)
    4) Mr. Assessed @ $520,000 sold for $608,000 (June 08)
    5) Mr. Assessed @ $503,000 sold for $600,000 (June 08)
    6) Mr. Assessed @ $433,000 sold for $593,000 (Jan 08)
    #6 had views and backed to a greenbelt. Hence the 1.37 times assessed value

    So June we have #4 selling at WOW! 1.17 times assessed value. Honest I didn’t look until now. Right on the money! See Kary…my predictions have a basis.

    #5 sold in June for 1.19 times assessed value.

    Robbie, that would put your current market value at 1.17 times $536,000 or $630,000 give or take. So $590,000 assessed value would still be less than current Market Value of $630,000.

    Any questions?

  7. Old guy – The assessment going up didn’t surprise me (I’m sure the city’s & county’s costs are going up and even civil servants deserve an annual raise). However, The assessed value going up 10% in a depressed market did!

    Kary L. Krismer – According to the Assessor’s property tax web page and tax rate table, the levy for Issaquah is between $9.46 – $9.59 per $1,000 of assessed value. Which by my math means I’ll be paying 10% more next year, than I’m paying this year. My tax rate didn’t go up, but the value of my taxable property supposedly did. I hope your right though, I’d rather see a 1% tax hike, than a 10% tax hike but I’ve seen nothing that says the revenue the county will get from is only going up 1% next year (even if in aggregate they only increase 1%).

    Ardell – Although I agree that assessed values are catching up to market values, that doesn’t mean I have to like it!

  8. Robbie,

    I agree you don’t have to like it. But many are asking if they can appeal their assessed values because the market is down. Seems to me you can’t appeal an assessed value until homes start selling for less than assessed value. No?

  9. Robbie,

    Just an anecdote, but we appealed and will consider continuing it going forward for the next couple years until our market correction is fairly exhausted. Our assessment was dropped $100,000, which saves us a sliver under $1K /yr. And, when the appraiser came to visit me I was fairly clear in arguing the state of the market (including updated comps), never mind the irritation I have when close neighbors who have significantly larger homes and paying one to two thousand LESS in property taxes than me. I’m pretty sure assessors offices know the valuation system can be fraught with problems and clerical boo-boos.

    Surprisingly, the feedback from the appraiser was that while they were busy, they were not slammed with appeals.

    This is Snohomish Co. though.

  10. Has your neighborhood seen a lot of teardowns in recent years? A transaction followed by a teardown is a signal to a good assessor that the land value was 100% of the transaction price (actually somewhat more, because there is a cost associated with tearing down the old house and hauling away the material, which could logically be added to the transaction price to calculate the land price. If most of the houses of a certain style (where I live, it is raised ranches) get demolished, the assessor may rightly conclude that that style is not highly valued, and those with that style will see some decrease in their house valuation. The land, though, may still be appreciating, particularly if they are in good school districts, near transportation, good medical care, a park, etc., because people value the neighborhood.

    Houses do not appreciate; and even most remodeling projects do not add as much to the value of a house as they cost. Houses depreciate, at roughly 1.5% per year. My guess is that your assessor is starting to do better assessments, based on how the market is valuing land and older structures.

    Valuations are done as of a certain date, usually relying on one or two years’ worth of recent transactions (and more weight is usually given to the most recent transactions). If the market has changed since that date, your current market value might be less than it was on the date of the assessment, but that doesn’t make the assessment invalid; it could very well have been an accurate valuation as of that date. And your share of the tax burden is just.

    But assessments should be updated every year or two, not permitted to get to be several years out of date. If one neighborhood’s sites are appreciating, and another’s are falling, old valuations will result in an unjust sharing of the costs of providing local services.

  11. LTV Fan,

    Robbie lives in a neighborhood of large homes on small lots built in 2003 or so. So I would not expect to see any teardowns.

    I think they took the mega parcel that existed before these homes were built, and broke it down to $123,000 for the land, attributing most of the improvement to the home itself. But as the home depreciates, they would lose too much in taxes by keeping the land value so low.

    I doubt there is much of a comp for these lot sizes in that area, since most of the homes on lots that size are newer and never bought separately as lots. To get approval for that size home on that size of lot, it has to be a Planned Development.

  12. That land has appreciated since 2003, so the $123,000, which might have been 1/nth of the original purchase price of the unimproved mega parcel, is no longer relevant. It is very normal for the land to appreciate, while the houses depreciate. Actually, I suspect that new houses may rise in value for a couple of years, while homeowners install landscaping, closet fixtures, and all the miscellaneous improvements that didn’t come with the house straight from the builder. But soon after that, depreciation should start to kick in.

    It seems pretty typical that a new house sells for about 4 to 5 times what the builder paid for the land. But from that point on, the land share of real estate value starts to increase, as land appreciates (or remains steady) and buildings depreciate.

    A 2006 FRB study found that across 46 major metro markets, land represented 50.9% of the value of single family homes in 2004. For Seattle metro, the figure was 62.6%. (San Francisco was 88.5% LV, Portland 57.9%, San Antonio 25.8%, Oklahoma City 23.3%.)

  13. LVT Fan,

    First, sorry for calling you LTV Fan earlier. I have Loan To Value on the brain.

    Interesting stats. Back in L.A. the structures for Oceanfront property were such a negligible portion of value, they were like a house of cards. People thought nothing of tearing down a perfectly good house to build their dream home, as the value was always mostly in the land.

    Here in Kirkland the land values have gone down a bit, as demand for building lots has decreased. While land doesn’t “depreciate” the fair market value can go down based on supply and demand factors.

  14. I called to complain about my county value and the county worker on the phone said, well you can contest it, but… they just may dig enough and find a reason to raise it even more. yike. that was a direct threat from a paid county servant! (but after i thought about it they may not have ment it as a threat, just stating it as a kown fact)
    I have noticed on the same block a huge difference in valuation, for no apperent reason, i was told that the person that lived there once must of said the wrong thing to a county worker once… yike i belive it after my first verbal threat!

  15. Pingback: 52% Appreciation in Kirkland This Year??? | Seattle Real Estate ~ Rain City Guide

  16. 21.Can’t use existing market values of Homes being sold in your nieborhood of Snohomish County to appeal your assessment. I believe that is what I read in the appeal paperwork. What else do you use?

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