Tuesday, December 14, 2010

City Assessors Dodge a Question

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.


  1. Thanks for being at the meeting and asking those questions Jeff. It would seem that this current lawsuit is going to be the only way in which to get straight answers. Our property tax (in Folwell) fell by $12. While that may sound encouraging and perhaps entice some folks from the East Calhoun neighborhood to consider moving here; our assessed value of course fell, even after 15K in renovations this summer alone and another 20K-30K over the last few years. Given that, if we had to choose between higher property taxes or lower assessed value, we'd choose higher property taxes all day long in this current scenario.

  2. Great Post!

    So, In the eyes of the City... Homesteaders who take due diligence to maintain their properties or take a financial loss at sale time in order to maintain credit worthiness also carry the burden of taxation because the property from Banks and Poverty pimps who are causing community decline are not figured into assessment Data?

    And... Since one division doesn't communicate with the other - CPED is condemning homes for demo because they have complicated the process and driven up the cost of basic Plumbing and Electrical repairs beyond reasonable perimeters that might attract buyers.

    While... City Assessors ignore the true cost of what buyers must invest and use rubber stamp data to maintain revenues based on what the home would be worth with those repairs.

    And.. to defend those calculations they disclose that the Department of Revenue forces the City Assessors to manipulate data to bring it in line with funding projections?

    That is not only stupid and immoral... it's illegal!

  3. In humility, I think I should also admit that perhaps I wasn't framing the questions in technically the right way, and it's possible that this assessor was doing her best to answer them.

    But part of me doesn't expect to get a straight answer out of our city officials/employees specifically BECAUSE of the lawsuit. On the other hand, the methods that our city uses to determine how they tax us should be transparent, accessible, and just, regardless of any lawsuit that may be out there.

  4. I am a real estate broker working mainly in North Mpls, where I also have lived for the last 15 years in Camden. I have viewed and showed over 2,000 home in North Mpls over the last 4 years. I have sold and closed over 200 homes to investor/rehabbers and homeowners. Many of the homes that I sold were virtual "turn key" homes that had all new mechanicals etc and had newer kitchens, baths etc and only needed minor cosmetic work done and they sold for between 20k and 30k. THAT IS THE MARKET!!!! Whether we like it or not! I am upside down in my house as well as many of you, but I choose to remain because it is my home and I love my neighbors! The market is what it is and most houses in NoMi are only worth between 30 to 40 K dolled up, unless you are near the parkway!

  5. The 30K-40K price bracket has been what was primarily moving on the market during the last four years, and there are many postwar-era homes in North. You can see many homes on the MLS that are far above 30K-40K and which are not located in Victory, Homewood, or on the Parkway. They simply aren't moving quickly or at all. That in mind, the city should have no problem finding comparables to assess homes within 30K-40K. But what about the larger homes, or homes above 100K-200K? There are just not enough comps. to accurately assess these homes based on the current market because they are not moving. Unless of course they're foreclosed on in which case the market price drops anyways.

    I'm not trying to argue or pick a fight. But if the city used your numbers of 30K-40K through out the Northside, North and the city would be screwed. We would be completely unable to pay our own way in North. Even though we may be getting the shaft up here (the reason for the lawsuit). There is no reason why south Mpls. should have to subsidize our disproportionate use of public city services, i.e., police and fire.

    Things need to be more fairly balanced around here. I thought our assessed value was too low yesterday, but my wife reminded me of a comparable house (even bigger and in better shape!) down the block that sold this spring (on the normal market) for under our assessed value, so we could perhaps go even lower. I don't like seeing our value drop even more, but there is no reason why we should be paying more in taxes than our neighbor in a comparable home either.


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