With tax bills being issued in a couple of weeks, I was looking for a silver lining to the housing crisis- one that would benefit most people, not just homebuyers looking for a deal. So I emailed the tax assessors for Multnomah, Washington, and Clackamas counties with this thought:
If home prices are down, shouldn’t property taxes drop too? Historically speaking, taxes increase just like real estate appreciates. And depending on who you believe, Portland home prices are down 6-7% over the last year.
The counties calculate your property taxes based on their assessment. Well, as it turns out lower home prices don’t translate to lower assessments (at least not the ones used for the calculation).
Multnomah County & Clackamas County responded to my question and at this point Washington County has not. Below, are the explanations from Multnomah & Clackamas counties explaining why taxes, generally speaking, will go up. In the responses, RMV is mentioned: this stands for Real Market Value- what your home would sell for if on the market.
From Multnomah County:
Hello,
The short answer to your question is that when the new 2008 tax information is released in mid-October, property taxes will go up, in general. Here’s why:
Each property in Oregon has two values, as I’m sure you know – the RMV, and the lower Taxable Assessed Value (AV). The RMV can fluctuate up and down due to various factors, but the new 2008 RMV will be based on the assessment date of January 1st of 2008, so many areas will still see an increase in the RMV.
The AV, according to Oregon law, increases a maximum of 3% each year (unless certain types of changes to the property occur which can cause the AV to increase more than 3%). So as you can see, even if the RMV decreases on a particular property, the AV will still increase, and so the taxes will also increase (generally speaking).
So to use a real world example: a house has an RMV of $200k, and an AV of $100k. As indicated above the RMV will most likely still increase slightly, but for arguments sake, we’ll say it drops down 10% to $180k. The AV will increase 3% to $103k, causing the tax dollar amount to go up. The loss in RMV is simply not enough to make a difference, since the taxes are not actually based on the RMV.
Of course, there always some exceptions to the rule. For example, the AV cannot be greater than the RMV, so if the RMV dropped enough to go below the AV, that would force the AV to go down instead of up, thus lowering taxes. This is rare, but just one example of why the taxes on a property might decrease.
From Clackamas County:
Oregon’s property tax system is more complex that it may seem so you have asked an excellent question. A simple answer would be that while I don’t know your specific area, generally real market values will not be declining 6% to 7% on this year’s tax statement and most property owners will see their assessed values and property taxes increase 3% unless they have new construction, remodeling or new money measures that would result in value or tax increases more than the 3% typical with measure 50.
Let me explain further. The real market value (RMV) on the tax statement represents the market value of the property as of January 1st of each year. This is the assessment date and estimate of value the property would have sold for on that date. The change in value on this year’s tax statement will reflect the change from January 1, 2007 to January 1, 2008. According to RMLS for the Portland market, the 2007 year ended, in their words, with the third highest total sales volume in residential real estate, the number of transactions slowing, but sales prices that carried on with a slow, but steady rise. As of the assessment date in Clackamas County, market values in some areas increased while in other areas, the market was flat or declining. Most sources indicate the real estate market in the Portland Metro area has been more resilient than other areas of Oregon and most of the rest of the nation. Today, we are 9 months down the road from our assessment date and I know you will appreciate the magnitude of events both nationally and locally that have taken place in the real estate, financial, and credit markets.
The key to understanding property taxes is to understand they are based on assessed value (AV), not market value. For most property, the maximum assessed value was established in 1997 under Measure 50 by taking 90% of the 1995-96 market value and this became the assessed value for that year. Since that time, market values have grown much faster that the 3% increase in assessed value required by the law. In Clackamas County, the average assessed value of a residential property this year is 55.5% of real market value. Generally, this means that as long as a property’s market value is greater than its assessed value, the 3% annual assessed value increase will continue and taxes will typically increase about 3%. This is true even if the real market value of a property has declined.
The tax system does have provisions for properties with new construction, remodeling or other measure 50 exceptions that provide a similar tax benefit received by existing property.
4 comments:
Thanks for your post. you answered a question i had for a while.
This is interesting. They did not explain the details on how they get the AV on new construction. Also, property owners may notice their house have less value than their neighbors, but paying more AV tax, this is ridiculous.
What has left out is the methodology county assessors need to apply to get the AV value. I think there are tons of errors in this methodology, thus, they are hiding it from the public.
This is not surprising to me, really it means that I am still paying taxes on a much lower amount than the real market value. We bought the house only a year ago for $12,000 below appraisal, and the taxes are FAR FAR below what we paid for the house. Of course I would like to see the taxes go down, but it makes sense.
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