2013 will be a big year on many real estate fronts – foreclosures, property taxes and property values.
That was the message industry professionals heard Thursday, Feb. 14, at real estate information company Chandler Reports’ 2012 year-end “Master Your Market” seminar at the Holiday Inn University of Memphis.
Attendees learned about two ongoing issues that affect every homeowner and taxpayer – the 2013 Shelby County reappraisal and the Shelby County school consolidation.
Although separate but related topics, one word was used throughout both presentations from Andy Raines, property tax attorney with Evans Petree PC, and Eric Barnes, publisher of The Daily News and The Memphis News – uncertainty.
“We don’t really know what’s going to happen with the schools yet,” Barnes said. “From a really callous real estate point of view … if the schools are a big driver of where people buy and sell their homes, all of this uncertainty isn’t helping a market move forward. From a somewhat civic point of view, the only people it helps is the private schools.”
Despite the uncertainty with the ongoing legal and legislation situation, Barnes said one thing is almost certain: county taxes are going to go up, perhaps considerably.
“It is a strange dynamic, even if they get a separate municipal school district, county taxes, I think in general, are going to up,” Barnes said. “The city of Memphis, the City Council is committed, and they really mean this, to lowering property taxes in the city. That’s interesting from a real estate point of view. People who say, ‘I want to get out of that really high double taxation in the city of Memphis,’ you could envision over the next four to eight years, a time when that difference isn’t quite as dramatic.”
To that end, Raines said the 2013 county reappraisal is very crucial because, generally speaking, as property taxes go up the value of property goes down. With commercial property, that affects buyers because when taxes are higher, net operating income is lower. With residential property, buyers look at property taxes as a component of what they’re going to pay for the house.
“The best indication we have now is that the overall value of the property will go down.”
Evans Petree PC
“Taxpayers need to be aware and very diligent about keeping an eye on the property taxes,” Raines said. “In Tennessee, with no state income tax, the property tax and the sales tax has to make a break. In Shelby County, you have unique issues such that the city of Memphis and Shelby County combined rate is significantly higher than any other rate in the state.”
But what value is it that the Shelby County Assessor of Property is trying to put on the property every four years? Raines said under state law, Jan. 1, 2013, is the date at which the fair market value – what a willing buyer would pay for the property and what a seller would be willing to sell it for.
“For a number of years, especially back in the 70s and 80s, the assessor’s values were usually less than you could really sell it for,” Raines said. “But over time, as reappraisals became every four years, that gap has narrowed. Now, the game is really what is the 100 percent fair value?”
Raines said for the first time in history, the value of a reappraisal is going down. How much the value decreases won’t be official until April 20.
“Typically in a reappraisal, because it’s every four years, values were going up, up, up – you would expect that the overall appraised value to go up, perhaps go up significantly,” Raines said. “The best indication we have now is that the overall value of the property will go down.”
The assessor uses a mass appraisal technique and it’s different for residential and commercial. This is because there are 350,583 parcels in the county. For commercial property, various appraisers use an income-approach model based on market data and then tailor it to each property type.
For residential, values come down to neighborhood comparable sales – hence the relevance of a homeowner’s proximity to foreclosures. Raines said the assessor uses “a common sense test” – if a neighborhood has 10 sales and eight of them are foreclosures, deeper analysis is directed at those foreclosures. But if there were only two foreclosure sales out of 10, it’s not as applicable.
Barnes said foreclosure attorneys and trustees are predicting foreclosures will jump about 20 percent – a result of two recent settlements with Bank of America and Wells Fargo.
Barnes said statewide, “the seriously over 90-days delinquent number” is down from the 2008 and 2009 peak. But it’s still historically very high.
“Even though we had this really bad housing recession/depression, there are a lot more loans out there now than there were back in 2005,” Barnes said. “The unemployment rate is better, but it’s still high; lending is happening, but the requirements on buying homes is still difficult. So the foreclosure mess isn’t going away, but it has come down from its real peak. There’s a lot of problematic homes still under the radar.”
Back in 2004 and 2005, in a good economy when unemployment was low and “people were feeling good,” Barnes said there were still 7,500 homes in Shelby County that went into the foreclosure process. Last year, there were 8,000 homes foreclosed in a much worse housing market.
“To some extent, we’re coming down,” Barnes said. “I think it’s going to level out. Even if the economy is booming, there are going to be 7,000 to 8,000 homes that go into foreclosure.”