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In last week’s edition of Cook County Connections, I touched on one of the most common questions I have been hearing lately, “How will this market affect my property taxes?”. This is a difficult question; the answer is that every taxpayer will be impacted differently. With the real estate market in a frenzy, it seems that many taxpayers feel their assessed valuation shouldn’t be changed, that only the buyers who are paying the recent premiums should see value increases. However, in Minnesota, property taxes are an “Ad Valorem” system, which means property taxes are calculated based off the current market value. At a recent Cook County meeting, a commissioner asked me about property taxes in California. In 1978, California voters passed ‘Proposition 13’, a property tax system that establishes a base-year and limits annual value increases on properties that have not sold or undergone new construction. The result of this type of system is that large disparities in assessed valuation and resulting property taxes now exist, 40-years later, especially in areas where real estate has seen significant increases in demand, like the Silicon Valley. Many taxpayers just don’t understand the complicated assessment process and I often hear the following questions:
How do assessors in Minnesota value properties that have not recently sold?
The recent sales are studied, and those sales prices help the Assessor establish the assessed valuations for all property. Certain transactions are excluded from these studies, like a relative sale or a foreclosure, as they may not be a true reflection of the open market. After the sales study period ends, the Assessor determines the appropriate stratification pools and applies adjustments to all properties within each pool consistently. An example of this stratification would be that lakeshore properties may receive more of an increase than non-lakeshore properties.
Can the assessor adjust values on only the properties that have sold, like California?
No, this is called “sales-chasing” or “spearing” in our industry and it makes it impossible to measure the accuracy of the overall assessment.
What if a property sold above the assessed value, mostly due to a remodel?
If physical changes have occurred prior to the sale and the assessor has not yet accounted for these changes in the property record, the sale would be rejected from the study and a flag would be put on the record for the assessor to visit the property and verify the information. This situation would not cause the assessor to raise values on non-sales.
What if my neighbor paid $100k more for their house than I paid for mine two years ago and they’re almost the exact same house?
This is a reflection of the market, typically that buyer would not have paid more than what they could find a substitute or similar property for. This is referred to as the ‘principle of substitution’ in real estate valuation.
Is the assessor’s methodology foolproof?
No, the methodology is appropriate and has evolved over the years to be as accurate and consistent as possible. What’s important is that each taxpayer is given a chance to review their property valuation for accuracy and is afforded an opportunity to formally appeal any determination made by the County Assessor. Equally important as having your property assessed correctly is having every other property in the jurisdiction assessed correctly. The assessment equalization process ensures that every taxpayer pays their fair share. Sold properties should be valued near their sale price and unsold properties should be valued similar to comparable properties that have recently sold. Easily measured is the impact of a valuation on a property like the BWCAW, so please be sure to catch next week’s article where I will discuss the revaluation of the BWCAW and its importance to Cook County taxpayers, it is after all, the biggest slice in our ‘pie’. I will also share my long-term vision for the Cook County Assessor’s Office, and other news and information related to property assessments in Minnesota. If you are a Cook County resident, several options that provide financial relief from rent and/or property taxes may exist. Talk to your tax professional or visit the Minnesota Department of Revenue’s website for more information on the ‘M1PR’ form.
County Connections is a column on timely topics and service information from your Cook County government. Cook County – Supporting Community Through Quality Public Service
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