Tuesday, March 13, 2007

Real Estate Assessments--Uncovering Truth

Recently, homeowners have received notices from the city (Virginia Beach in this case) indicating revised real estate assessments for their residential properties. Since property values have skyrocketed these past five years in Virginia Beach, it has been common for homeowners to have “appraisal shock” knowing that an increase in appraised value corresponds to an increased tax bill for the upcoming year. This has provoked great anger in those people within my social circle, depending upon the degree of increase, of course. I view this homeowner angst with both pleasure and amusement. Let’s look at some facts, biases and myths that affect moods and opinions.

In a rising marketplace, owners of real estate feel a sense of pride and increased wealth associated with their property. You have heard the boastful puffing at parties and in the lunchroom. “My house is worth $250,000 more than when we bought it three years ago,” they say. Yawn. Well smarty pants, if you say it is worth $250,000 more now, why are you surprised when the increased assessment arrives in the mail? You should be happy, jubilant and jumping up and down with joy for the city’s validation of your wealth. You lucky dog!

This jubilation is never realized, though, since an increase in value leads to an increase in taxation. Taxes are evil, right? Well, maybe not, and the increase is never really that much. Let’s take a $100,000 increase in value on a $500,000 property, using a 1.00 percent tax rate. First off, the $500,000 home is now notionally worth $600,000. That’s a nice 20 percent increase in one year! The annual tax burden now increases $1,000 (a federal tax deduction), from $5,000 per year to $6,000 per year. Gadabout likes the $99,000 paper value of his estate in this example.

A note on assessments. City Assessors are civil servants, and as such are not part of the political machine that spends tax receipts. They are accountants of sorts who have one job to do—assess value and report their findings. Don’t hate the player! The political arm—city council—makes the call to the level of assessments (usually 85 percent, but some are as high as 100 percent, as in Virginia Beach), and the TAX RATE. If residential housing tax receipts are producing too little or too much revenue, then the political arm of government adjusts the tax rate applied against the assessed value. Are you keeping up with me?

The funny thing about all of this is that the people who whine the most are usually those who make out the best. If you have children in public schools, you are making money, regardless of your tax burden. Schools are expensive, and the single population and retired crowd are covering your children’s education. Sorry, but $6,000 per year for schools, police and fire, roads, garbage collection, etc, is a bargain. I bet you spend more than $6,000 a year lawn care, Girl Scout cookies and pet therapy.

Like my Dad always said, “Son, it takes money to make money.” Ponder those words, pay your taxes and enjoy the many benefits of homeownership. Don’t worry, be happy. Okay?

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