Understanding Revaluation in a Declining Market

With 48 towns going through revaluation last year and another 39 scheduled for this year, the reality of declining property values and fluctuations in neighborhood and property type values has many taxpayers shaking there had and wondering if they are being unfairly taxed. This article hopefully will shed some light on that.

Property value cartoonThe first thing to understand is that your assessment in and of itself has no effect on the taxes you pay. What really affect’s your real estate taxes is how your assessment relates to other properties both commercial and residential, and how all those assessments as a whole relate to the amount of personal property and motor vehicle values in your town to make up the Grand List.

This is because the taxes you pay is a simple formula of your mill rate times your assessment.    So if your assessment is $100,000 and your mill rate is 50 you are paying the same amount as if your assessment is $1,000,000 and your mill rate is 5.

The question becomes what determines the mill rate? That also is a pretty basic calculation. You take the towns budget divide it into the grand list, then divide by 1,000 and you have your mill rate ( in reality it isn’t that simple as a town has other income such as state and federal subsidies and grants, investment income and possibly reserves if they choose to use them, that would reduce the budget amount that has to be applied against the grand list).

Since the majority of income Connecticut towns receive comes from the grand list (real estate made up typically between 80% and 95%) most of the budget burden falls on it.

Connecticut mandates that properties be assessed at 70% of market value. It further requires that every town perform a revaluation every five years with at least every other one entailing measuring and listing all real property.

The purpose of the revaluation is to not only set property values but to ensure that properties are assessed equitably. Although we often read about how property values have increased or more recently declined at a certain rate, in reality values of different types of real estate fluctuate differently and in some instances different sections of a town’s property values may change at a different rate.  So revaluations are performed to recognize these differences and adjust for them.

If this adjustment was made annually the differences would be more subtle and the individual tax payer would have these fluctuations hit a little bit at a time. But over a 5 year period those changes can multiply leaving the property owner with a tax shock. That is what is happening in Connecticut. As an example most towns in Connecticut found the tax burden of residential properties rise between 2% – 7% or more as compared to other property types between 2006 and 2009 (the most recent year that the Office of Policy and Management published this information online) for towns that had revaluations between that time.

So during that period residential taxes increased between 2-7% in relation to commercial and personal properties for those towns even if the towns did not increase their expenses. Add to that any location pockets that might have increased at a higher rate,  for example possibly waterfront properties or neighborhoods that have become more desirable, and the probable increase in expenses and you can have a major tax shock for home owners.

In the past when property values were increasing sharply, a new revaluation was often met with resistance from property owners and some would challenge the assessment. The current declining values and new assessments often lower than the previous assessment does not mean you should be less vigilant, however. Typically declining values results in a lower grand list and higher mill rates to offset that decline. So just because the assessment is lower doesn’t mean that property taxes won’t increase, nor does it mean that you are paying only your equitable share.

It is important that you be vigilant with your new revaluation assessment to ensure accuracy and fairness. As an example why this is important, the Killingly assessor compared data between the 1974, 1984 and again with the 1994 revaluations. During that period data for the existing properties in town changed by 20% from one revaluation to the next one. Half of the changes involved property improvements without building permits, 90% of which were deemed minor in nature by the assessor that didn’t greatly affect values. However, the remaining half, which affected 10% of the real property in Killingly was a result of data collection errors, with 50% attributed to the 1984 revaluation and the other from data collection or recording errors from the 1994 revaluation. By the assessor’s own estimation 1 in 20 houses had errors from each revaluation.

Another example was the 2002 Somers revaluation. This was a non measurement and inspection revaluation. Yet despite that the First Selectman Dick Jackson, stated that there were “many mistakes in square footage” in the records that determined value. Even though the town itself recognized that there were numerous errors, only 295 real estate owners (5% of the town’s total properties) requested a hearing before the Board of Assessment Appeals.
So it is important that even if your assessment declines that you as a real property owner carefully look over your new assessment to make sure you are not paying more than you rightfully should.

One Response to “Understanding Revaluation in a Declining Market”

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