Your Property Taxes and You – Part 2

by Christopher O'Brien

Part 2 of a 3-part series.

By Roy Balkus

First, I need to correct an error in the first part of the series. To get the approximate fair market value of your home you need to divide the assessed value by .70! Not multiply it. My Editor, an English Major no doubt, got overly zealous in making corrections, ignoring the math guy. Sorry for that.

Editor’s Note: Yeah… I reversed the numbers while editing the first draft. Thanks to modern online editing, you’ll never see my error – it was corrected. But I defer to the math guy from now on! *Bows*

This series of articles was prompted by a lot of comments on Wolcott Chats, a Facebook group. Those comments paraphrased were “my assessment went down, I am going to save money on taxes”. If you are on Facebook and not a member of Wolcott Chats, I urge you to join it.

So, the grand list for any Connecticut city or town is made up of all the taxable property which consists of three components. The first component is real property which includes single family residences, multifamily residences, condos, and commercial/industrial property. The second component is personal property, motor vehicles, trailers, campers etc. and the final component is business equipment. Business equipment is a “complete and accurate description of all personal property used in the conduct of your business”. The link below will give a far better list of what business equipment is taxed. http://wolcottct.org/pages/page_content/secondary_town-departments_assessor_personal-property_personal-property-info.aspx

An increasing grand list is a good thing, a declining grand list is a bad thing. Yes, probably, but not always. Town spending is the real issue, if spending increases by a larger percentage than the grand list does then taxes will generally go up (there are also other sources of income).

If the grand list is increasing because new houses are being built, businesses are moving in, adding equipment, which is taxed, and jobs (which are not directly taxed at the town level) that is certainly a good thing. When we talk about determining the mill rate in the third part of the series, you will see that this may not always be true.  New houses can mean more people using town services too, so there is a tradeoff.

However high your assessment might be, it is only a minuscule portion of the grand list.

Here is how the Wolcott Grand List fared over the last few years.

Fiscal Year Grand List Tax Collection figure Collection % Percent change
FY 10-11 $1,365,222,592. $1,344,853,592. 98.5% Not researched
FY 11-12 $1,362,623,382. $1,342,184,031. 98.5% – .2%
FY 12-13 $1,254,860,310. $1,236,037,405. 98.5% – 7.9%
FY 13-14 $1,256,554,704. $1,237,706,383. 98.5% + .1%
FY 14-15 $1,264,734,792. $1,245,763,770. 98.5% + .6%
FY 15-16 $1,270,085,180. $1,251,033,902. 98.5% + .4%
FY 16-17 $1,281,503,699. $1,262,281,144. 98.5% + .9 %

 

Note that the grand list declined in both FY 11-12 and in FY 12-13, by a large amount in FY 12-13. Remember that the grand list is “as of” October 1 of the preceding calendar year. So, the grand list for Fiscal Year 10-11 was set in October 1, 2009, but it was using assessed values for real estate that was last assessed in 2006, pretty much at the height of the real estate bubble. The impact of the bubble bursting is not seen until FY 12-13 which uses the grand list of October 2011.

The grand list for Fiscal Year 17-18 has not yet been finalized. As is standard practice it will be certified in January or February of this year. When I spoke with the Assessor in early December she said she is working on the business equipment figures and awaiting the personal property (motor vehicle) file to come in from the State of Connecticut Department of Motor Vehicles.

I did an analysis of the assessment figures for real property. I selected 100 random properties, in the approximate proportion of single family residential, multifamily residential, condos and Commercial/industrial property in Wolcott.

This table represents the changes in the property assessments between 2015 and 2016 grand lists based on that analysis.

Property Type Percent Change
Commercial/Industrial -1.78%
Condos -6.31%
Single Family Residences -7.83%
Average decline -6.51%

Since residential property comprises most Wolcott real estate the average skews toward the higher side.

I was surprised by the size of the average decline, so I did some further research and found the following figures, obtained from the Multiple Listing Service (MLS), a trusted portal for real estate nationwide. These figures are for Wolcott only! They are from what transpired, they are not adjusted for property size, condition, timing, location and other factors.

While there is no absolute direct connection between the fair market value as estimated by the assessment and a sales price as negotiated and the appraised value as determined by a licensed appraiser, there should be a correlation.

 

Year Aver sales price # sold Average Days on market Percent change
2011 $228,828. 111 86 Not researched
2012 $217,585. 101 110 – 5%
2013 $213,830. 120 81 – 1.7%
2014 $211,461. 111 83 – 1.1%
2015 $215,735. 153 73 + 2.0%
2016 (thru Dec 1) $233,459. 159 76 +.8.2%

 

By the MLS numbers above, the number of houses sold increased in 2013, yet prices still had not rebounded to 2011 levels. In 2011 the average sales price was $228,828.00 and in 2015 it was $215,735.00. So, the difference between the average sales price for the years 2011 and 2015 is $13,095.00 or a 5.7% decline, slightly less than my assessment analysis. Not exactly apples to apples but close.

So, in my opinion, the assessments and the reality of the market place are pretty much aligned.

In my comparisons below, I will use MLS 2011 and 2015 figures. It’s looking like 2016 will be a little better than 2011 for average sales price – however December figures have yet to be reported and the average sales price could go up or down. I am using 2015 rather than 2016 because 2016 is not yet over and the company doing the assessment began that job long before October 1, 2016. They did inspections in the February, March, April time frame of 2016. Assessments and appraisals are always historic.

If you would like to understand why this is occurring some 6 or 7 years after the housing market “bottomed out” I would suggest this article from The Hartford Courant. It highlights the combination of population declines and a lack of job growth in Connecticut. Basic supply and demand factors at work that are not present elsewhere in the country when you hear about the rebound in housing.

Worth the click. http://www.courant.com/real-estate/property-line/hc-connecticut-home-prices-20160117-story.html

The following portion consists of approximate figures and they are the author’s and only the author’s opinion!

In February, you can tell me how wrong or right I was on the grand list prediction. In June or July, you can tell me how wrong or right I was on the mill rate prediction. You’ll need to wait for the final budget to do that.

Prediction about the grand list.

The decline in real property will be somewhat offset by new cars, additions to homes, more business equipment but the grand list will decline by about 6% or approximately $77 million and come in at about $ 1,204,600,000.

Other assumptions:

  • I am using the “standard” tax collection rate of 98.5%. It is not standard but has been the norm for many years. I’ll touch on that in Part 3.
  • I am assuming no increase in town spending. This is a big assumption since overall spending in Wolcott has increased by an average of 2.61% in the last three fiscal years.
  • I also believe that the current administration will do its best to soften the impact.

Conclusion:

With no increase in spending the new mill rate will need to be set at about 30.8 mills up from the current 28.91 mills. That is 1.89 mills higher or an increase of 6.5% in the mill rate.

Spending and other risks and considerations will be addressed in Part 3 of this series.

So, what does this mean?

Let’s take a typical (as defined by the market) hypothetical house from the MLS table above. In 2011 it sold for $228,828.00. Since the assessed value should have been 70% of that figure it comes in at $160,180.00. That Assessed value from 2011 is still in effect as of last FY 16-17 and the mill rate was 28.91 resulting in a tax bill of 4,630.00 (round figures). Since the value in 2015 is now $215,735, the

assessed value should decline to $151,014.00. If spending has not changed it will result in a mill rate of 30.8.0 for a tax bill of $4,61.00. (again, round figures).

Fair market value Assessed value Mill rate Taxes due
2011 228,828.00 160,180.00 28.91 (FY 16-17) 4,630.00
2015 215,735.00 151,014.00 30.8 4,651.00

 

Let’s do an example of a hypothetical house that had a greater than 5% decline in fair market value and thus the assessment, say 10%.

 

Fair market value Assessed value Mill rate Taxes due
2011 228,828.00 160,180.00 28.91 (FY 16-17) 4,630.00
2015 205,945.00 144,162.00 30.8 4,440.00

The premise here is that the house value has declined in value greater than the general market. It could be because of location, lack of maintenance, depreciation, obsolescence or the old assessment was wrong. There are other reasons, too numerous to list.

So, a decent savings but you are not going to do a European vacation on $190.00 a year savings, and another revaluation will be coming in 5 years, when it will all change again.

Let’s do another example where the value increased by 5%. Again, it could be for a lot of reasons. I found none in my sample that increased by more than 7.4% and only 11 out of the 100 samples had any increase at all.

Say the increase in fair market value is 10%.

Fair market value Assessed value Mill rate Taxes due
2011 228,828.00 160,180.00 28.91 (FY 16-17) 4,630.00
2015 251,710.00 176,198.00 30.8 5,426.00

 

Nearly $800.00 more, now that one hurts! It is bucking the trend, so unless there was an addition or another major improvement, this warrants an appeal.

Conclusion:

Unless the assessed value of your house went down by greater than the average, your real estate tax bill in dollars will remain essentially the same or go up. This is not unlike what occurred in Wolcott in FY 2011-12 and FY 2012-13, the grand list declined by 8 % and the mill rate went from 22.68 to 25.27 an increase of 2.59 mills or over 11%.

If your house assessment went down less than the average did, your real property taxes will go up, but perhaps not by much depending on how close to the average you are and what truly takes place with spending.

If your assessed value went down more than the average your real property taxes will probably go down IF there is no increase in spending and IF all other budget considerations remain the same.

Obviously, if your assessment went up your real estate property taxes are almost certainly going to go up.

The questions remain. How Much? Why? How is this all calculated?

Stay tuned for the next episode, not to be out until after the grand list is certified and published in February. We will see how close my predictions for that are then.

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