The Atlanta Journal Constitution is writing Tax assessors boggled by housing dip.
For less than the price of a decent used car, you can buy a home in Atlanta today. Actually, real estate agents list a dozen choices for $10,000 or less. Step up in price to $20,000 and your choices expand 10 fold.
The prices seem absurd but they are part of a real estate market suffering with rampant foreclosures, mortgage fraud, abandoned investor properties, a collapsing mortgage industry and other ills. The market is unlike anything seen in metro Atlanta in years and it has local tax assessors and appraisers as confused as anyone.
What is the value of a lot if no one can get a loan to buy it? How should you value a home that sits on the market for a year with no offers? When a neighborhood has several foreclosures, short sales and abandoned properties, do they set the market?
My Comment: If no one will buy a house, perhaps it is worthless. There are plenty of houses in Detroit, Cleveland, and other cities with negative value. They need to be razed as uninhabitable. At a minimum, a home that does not sell is priced too high. Yes, foreclosure sales do set the market if there are enough of them. Guess what? There are more than enough of them and whole neighborhoods are being repriced by market forces. Sadly, assessors have not figured this out. Even worse are cities counting on that tax revenue, spending like there’s no tomorrow. Well, tomorrow came.
The training and rules for mass appraisal say taxable values should be set at fair market value or at the price for a sale between a “willing buyer and willing seller.” Distressed sales, foreclosures and short sales are not supposed to count toward setting taxable values.
Therein lies the problem for tax assessors.
My Comment: Tax assessors need to throw away the book. One out of line sale does not set a market but scores of them do. Entire neighborhoods have been repriced and it is a huge mistake to ignore distressed sales when distressed sales are the norm!
As Fulton’s chief appraiser, Burt Manning finds it hard to believe any parcel in Fulton is worth less than $10,000. Still, real estate listings prove they are.
“We are trying to understand all these things,” said Manning. “What’s the right answer? We don’t know. It’s tough. I’ve got entire neighborhoods where all I’ve got is distressed sales. I don’t have any good sales.”
My Comment: At this point all sales are good sales. They clear inventory. The right answer is easy. Instead we have assessors thinking they know better than the market what a house is worth. They don’t.
In fact, seven of Atlanta’s least-expensive homes are listed on average for $8,800 but taxed at an average value of nearly $93,000. The cheapest, at 336 Adelle Street in the Lakewood area, comes in at $5,900. Tax records list its value at $101,700.
My Comment: Who wants to pay 10 times too much tax? Yet, if assessors lower appraisals, cities will want tax hikes. Those in neighborhoods where prices did not drop as much percentagewise will get killed if this happens.
Wayne Flanagan, a RE/MAX agent who sells bank-owned properties, said in zip codes like 30310 and 30315 values have taken a nosedive faster than public officials can account for.
“There are some price ranges like $20,000-$80,000 where 90 percent of the properties on the market are foreclosures,” Flanagan said. “You’ve got one bank competing against another. It’s a spiraling situation, downward.”
My Comment: Downward spiral is right. But look at the implications. Assessors are ignoring 90% of the sales. That can never be right.
The agent said when tax values and true values are way apart, it can keep properties from selling and further depress values. Flanagan said he’d had a $95,000 deal on a duplex fall through recently because it was being taxed at $300,000. The buyer didn’t want to be saddled with taxes at that level.
“They (government officials) are going to have to take a look at this,” Flanagan said. “We are experiencing some of the same problems as Detroit, taxes are so high they drive down value.”
My Comment: Bingo. This is an enormous problem and it’s going to get a lot worse.
Thomas Stump, interim chief appraiser in DeKalb, said the number of “good sales” dropped from 12,400 last year to 8,500 this year. The lower number makes it even harder for the assessors to come up with values, he said.
“It’s just a very strange market,” he said. “It’s very difficult to determine values.”
My Comment: All sales are good sales and on that basis it’s easy to determine values. Stump’s problem is think he knows more than the market as to what a house was worth. Ironically, this is a one way look. When prices were rising did Stump ask which of those values were inflated? And the same applies to every assessor in the country. Somehow in a rising market nearly all sales are “good sales” even when it should have been obvious to everyone how big the bubble was, and how much fraud there was.
Calvin Wimberly, a real estate agent who primarily sells bank-owned properties and has two listings under $10,000, said home prices in some areas have tumbled 200 or 300 percent in the past year. He said many suffered from mortgage fraud that artificially inflated values.
My Comment: Prices fell 300%? This guy needs a math lesson.
Wimberly said he’d recently sold a home in West End that tells the tale of what’s happened in some neighborhoods. The home sold in March 2004 for $305,000 and then in August 2004 for $700,000. It tumbled to $122,900 in a sale last year. It sold recently for $51,000.
My Comment: I would like to see a picture of that house. This smacks of fraud. In any case, the value of that home is now $51,000.
Those are the kind of numbers that have public officials scratching their heads.
“I had the toughest time trying to convince the bank the price was correct,” Wimberly said. “They thought I was out of my mind.”
Across the country cities and municipalities budgeted for property tax revenues to be forever rising, and finding new ways to waste taxpayer money in the process. Now home prices are falling to where they were 3-4 years ago even. However, assessors have not caught up because they are only looking at “good sales”.
One result is that people are balking at buying houses 300% or more over assessed. Who can blame them? Even more ominous is the fact that many projects (new schools etc), have been approved based on inflated home prices.
One interesting aspect of these $10,000 home (or less) is the proposed $10,000 tax credit for buying a foreclosed home. Buy a home for $5,000 (or even $500 as some homes are priced in Detroit), and pocket free money.
A taxpayer revolt and city budget crises are coming in mass. Is any city in the country prepared for it?
Mike “Mish” Shedlock
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