Thanks to Star-Advertiser business writer, Andrew Gomes, for his story on Sunday about the discrepancies between the selling prices of high-value Oahu homes and their often much lower appraisals for property tax purposes (“Home price, taxable value can diverge“).
Here’s the basic thrust of the story:
…in the upper reaches of the island’s housing market where trophy properties shine, it’s not uncommon for city appraisers to value a home well below what a new owner paid.
Sometimes city appraisers can’t justify purchase prices as a “real” value. As a result, an owner’s property tax obligation can be based on land and building values far below what they sold for, resulting in less revenue for the city.
“Sales price and cost is not equal to value,” said Gary Kurokawa, the city’s deputy director of budget and fiscal services.
The difference for a multimillion-dollar home can amount to tens of thousands of dollars not flowing to the city.
Some of the examples are eye-popping.
Gomes cites the example of a Black Point mansion that sold a few years ago for $16.5 million, and then got a $1 million facelift. It was assessed for tax purposes at $9.5 million in 2015, but dropped for 2016 to $8.4 million, a 50% discount off its selling price two years ago.
Gomes reported:
“Sales price and cost is not equal to value,” said Gary Kurokawa, the city’s deputy director of budget and fiscal services.
I admit that I’m confused. Here’s an excerpt from the applicable city ordinance.
Sec. 8-7.1 Valuation–Considerations in fixing.
(a) The director of budget and fiscal services shall cause the fair market value of all taxable real property to be determined and annually assessed by the market data and cost approaches to value using appropriate systematic methods suitable for mass valuation of real property for ad valorem taxation purposes, so selected and applied to obtain, as far as possible, uniform and equalized assessments throughout the county.
It seems pretty obvious to me that the best “estimate” of a property’s actual market value is the price someone has just paid in an open market transaction.
You don’t have to look far to find agreement with this proposition.
“The only real measure of market value is what a particular house sells for. Period,” according to the website CREonline.com.
Could something be amiss with the city’s standard methodology? Under what circumstances do appraisers walk past an actual sales price to assign a dramatically lower (or higher) assessed value, which by law is supposed to approximate the market price?
Perhaps there needs to be a better explanation from the city’s end of just how they actually made the assessments that Gomes cites in his story.