A better way to reassess: People would trust a more objective system of valuing properties
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Is it possible to do a property reassessment that people will accept?
The idea that buildings and properties should be reassessed on a regular basis seems perfectly logical. Property values change over time. People should have to pay only their fair share -- that is, a property tax based upon the value of their property now, not 10 years ago. To say that we should use a base-year valuation -- as we have in Allegheny County at the moment -- or freeze or cap assessments is like saying that people should pay income taxes based not on what they presently make but on what they earned in, say, 2002. It doesn't make sense.
So why have our elected officials fought so hard to prevent reassessments?
Elected officials fear reassessments in part because of the methodology used in the process. The way homes are reassessed -- using supposedly comparable properties that have sold more recently -- is guaranteed to produce turmoil and dissatisfaction because it is so highly subjective.
Valuation based on "comparables" is problematic, especially in Allegheny County, where similar homes may command vastly different prices depending upon where they are located, even within neighborhoods. The problem is magnified when a county has limited funds to thoroughly analyze every piece of property -- unlike a bank or mortgage company that is in the business of making home loans.
Elected officials know that reassessments are unpopular and can make or break political careers. In the 1990s, Allegheny County commissioners "froze" assessments. They were told by the courts that this was unlawful and unfair, but they kept stalling.
Our first county executive, Jim Roddey, completed the first reassessment in decades with the help of an out-of-town consulting company, Sabre Systems, which applied the subjective system of using comparables.
Sabre was paid tens of millions of dollars -- after which tens of thousands of property owners appealed their new assessments. Many were incensed that the homes determined to be most like their own were not similar at all or had been sold for a price they could never hope to get. Hardly anybody was happy. Mr. Roddey lost his bid for re-election.
After campaigning against Mr. Roddey on the assessment issue, our next county executive, Dan Onorato, reverted to a 2002 "base-year" assessment system. This meant that every subsequent year would produce more disparity and unfairness because property values were essentially locked in at that singular point in the past.
The courts didn't like this either, Mr. Onorato was ordered repeatedly to fix it, but he delayed as long as he could, right up until his last days in office. Finally, another out-of-town company was hired by the county to reassess properties and it used comparables, too. This time the consultant was paid only $11 million ($18 per property) and, again, there were many glaring errors. Hardly anybody was happy. The county is now weighed down, again, with complaints and appeals.
A reassessment that depends upon subjective determinations of what constitutes similar houses made by out-of-towners paid only $18 per house will never have credibility. An average bank appraisal of a residential property in Allegheny County runs about $600.
A taxation system, to be credible, must rely on objective factors. For example, the price of goods sold -- not some subjective opinion of value -- is used to compute sales tax. Income taxes are based upon actual wages (as reflected by a W-2), dividends and the like, not on what someone might conclude that someone's work or investments are worth.
Property taxes, as old as the country itself, once were based upon an objective fact -- acreage. Now that we include land and buildings for the purpose of levying a property tax, is there a way to compute the tax that is purely objective, that can be adjusted as values change and that does not rely so heavily on the capricious methodology of comparables? Is there a way to compute the tax that is understandable and credible and, therefore, less of a threat to our elected officials?
Yes, there is. There is a way to reassess based on objective standards that is inexpensive and that could make annual reassessments routine, efficient, predictable and understandable.
Assessments should be based upon the sales price of the home being assessed (not some comparable), adjusted for inflation. Comparables would be used only when the most recent sale of a property was not an arms-length transaction between unrelated parties (for example, when parents sell their home to a child).
The price paid for the home, adjusted for inflation, would be presumed to be the property's current market value. This value could be additionally adjusted based on the previous year's sales in a defined geographical area in order to capture local market trends and account for places where values are changing in a manner that is out-of-step with the county average.
Again, this adjustment would be made by objective data -- using a computer model to determine the extent to which sales prices are rising or falling in a particular neighborhood or municipality. Such a model could be developed by the government, by the Association of Realtors or, for that matter, by local college students properly supervised -- probably in a matter of weeks.
This kind of system also could be adopted statewide, putting all counties on an even playing field by using the same objective criteria. Other states use this system. We can, too.
People will always reject reassessments (and the politicians responsible for them) that rely on subjective data. A reassessment program using objective data would avoid the tens of millions of dollars needed to pay assessors or consultants to conduct reassessments based on comparables that, in the end, would be guaranteed to be unsatisfactory because they are highly dependent on subjective opinion -- not to mention the time, effort and money spent on thousands of appeals.
If you paid $70,000 for your house in 1998 and, applying the rate of housing inflation, it is now worth $125,000, that objective mathematical calculation would be easier to accept than if someone tells you your house is now worth $125,000 because another house -- which may or may not be like yours -- sold for that amount. If it was understood that everybody in the county was being assessed by the same objective standard, we just might avoid a revolt -- and save a lot of money in the process.
First Published May 20, 2012 12:00 am