Post by the Hawthorne Hawkman, image from the Boston Real Estate Blog.
At yesterday's City Council hearing, in which neighborhood funding was stripped away, CM President Barb Johnson announced that city assessors would be available in an adjoining room to answer questions about property tax values. The pressing item on my mind as soon as I heard this was "What exactly constitutes a forced sale? What kinds of sales are and are not taken into consideration when determining a value?" For new NXNS readers, that line of questioning has to do with a lawsuit in which it is alleged that north Minneapolis residents are paying taxes based on values at 300% of market value.
(On an interesting side note, one of the southwest Minneapolis residents who testified at the hearing mentioned the lawsuit and said his city councilperson told him it was nothing to worry about.)
Shortly after my testimony, I slipped out to ask an assessor a few questions, such as...
...what exactly constitutes a forced sale? What kinds of sales are used to arrive at a market value?
Obviously, we easily agreed that sheriff's sales are "forced sales" and not an indicator of market value. She also mentioned houses sold at real estate auctions as not being pertinent in this regard. In a case like this, Mrs. Smith loses her house to foreclosure, and after the redemption period, the bank winds up being the sole owner. Instead of listing the property on the MLS, the bank puts it straight into a real estate auction. At such an auction, buyers have to put down a percentage (usually at least 5-10%:) of the offered amount in certified funds, and have a certain amount of time after their offer is accepted to come up with the rest. These sales aren't available on the open market nor are most types of home buyers really equipped to participate. So auction sales are off the table too.
But wait a minute--there are at least two houses I can think of off the top of my head in Hawthorne (one on the 700 block of 30th Ave N and another on or around the 2500 block of Bryant Ave N) that have been on the MLS and have had real estate auction signs on them for quite some time. If one of these properties sold for $10,000 at an auction, couldn't that be used as a market value, since the house has been available on the open market for a reasonable amount of time?
Furthermore, what about all the other foreclosed houses in Hawthorne or across north Minneapolis that have languished on the market before selling for pennies on the dollar? For quite a while, that was almost the entire makeup of the housing market in Hawthorne.
Well, she wouldn't know for sure because assessors haven't been inside of those properties to know what the conditions are really like. So maybe one $25,000 house was in very poor shape and sold for an accurate amount, but the one across the street sold for a similar amount but was in far better condition. It's really hard for assessors to get into these properties because people don't want to give them access.
Ok, I conceded. Then when you can't get in how do you assess values? (Computer models, she said.) And how often do you get inside the properties that sell or are assessed at $200,000 instead? Do you have a uniform rate of access to at least show that the same methods are used to arrive at values at all levels? Once again, she did not have a satisfactory answer to that question.
As we discussed property conditions and relative values of vacant houses, I also made the point that many times the condition of the property has less to do with the value/desirability than the process of bringing that boarded/vacant property back online. The code compliance process is NOT easy, NOT user-friendly, and generally not easily navigable for your average home buyer. So that hypothetical $25,000 sale of a property in good condition that the assessor thinks is actually worth far more because of its condition...well, I contended that the city's own process for restoring that property drives away buyers who have the money and the desire to buy that property but don't want to deal with the city's process. Therefore the true market value IS $25,000 because that's what someone was willing to pay on the open market. Really folks, it shouldn't be this hard.
And then we got to a point in the discussion where she said that the Department of Revenue, which supervises their assessors, actually forced them to raise the assessed values in certain areas of the city by 5% because the city came in too low. That was certainly interesting.
On a night where, according to Dave Bicking's testimony, the city of Minneapolis constructed false conflict between southwest residents' concerns about property taxes and north residents' desire for continued services, I left the evening with more questions than I had answers about the basic process by which our assessed values are even determined.