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Luxury Home Values Decline
August 11th, 2009 3:40 PM

Today's San Jose Mercury News (8/11/09) had an article about luxury home values declining in the the Silicon Valley area.  This was not news to me as I have been doing appraisals for owners of such homes recently.  They've been concerned that the recent assessments they have received have not reflected the decline in the values of their properties.

It is bad enough to be losing value on your home, but if the assessment does not accurately reflect this loss, then the property taxes are going to be higher than they need be.  California's Proposition 13 mandates that the assessed value be no more than the property's market value as of January 1 of each year.  It also sets the maximum amount of taxes to be only 1% of the home's assessed value (plus any other incidental taxes like school bonds, etc., that were approved by voters).  So, if a home is assessed for $3 million, but it's real market value (as of January 1) was only $2 million, than the owners will be paying $10,000 more per year in taxes than they rightfully should be paying (1% of $3 million is $30,000, 1% of $2 million is $20,000 - $30,000-$20,000 = $10,000).

Although the Assessor attempts to assess all properties accurately, that is not always the case.  Fortunately, the assessor does have a free appeals process available to property owners. I have a link to the Assessors' websites for Santa Clara, San Mateo, Santa Cruz and Alameda counties on my website:

Instructions for filing appeals can be located on each of the websites.  It is highly recommended that the appeal be accompanied with evidence to support the appeal for a different value (I suppose you could appeal for a higher value, but why would you?).  An excellent support document is a real estate appraisal prepared by a qualified appraiser.  Generally, a designated appraiser from a professional appraisal organization such as the Appraisal Institute or American Society of Appraisers is considered to be qualified to perform such appraisals for the appeal process.  Data from sources like Zillow, or from hearsay (my real estate agent who sold me my house thinks it's is only worth ...., etc.), are not acceptable as evidence.

Recently I did an appraisal for someone who received an assessment they believed to be too high.  As part of the appraisal process I did an analysis of luxury home sales in the Los Gatos/Monte Sereno/Saratoga market area where the subject property was located.  For the analysis I used the same parameters the assessor uses - sales of comparable properties that sold in the market area between July 1, 2008 to March 31, 2009.

What I found was that typical prices of such homes in that particular market area dropped from a high of about $650/SF in October, 2008, to about $550/SF as of January 1, 2009, a decline of approximately 15%.  Using comparable homes to fully support my opinion of value as of 1/1/09, I found that the assessed value was over a million dollars higher than I believe the property to actually be worth.

The owners of the subject property bought their home a few years ago when values were higher, paid a fair price for it at that time, and for awhile their home's value went up, just like most everyone else's.  Although home values increased considerably during that period, Proposition 13 also mandates that the assessed value of a property can rise by no more than 2% per year.  In their case, it appears that their assessment went up 2% after the first year, 2% the next year, and so on.  The assessor continued that 2% increase for 2009, but the market actually declined from the previous year rather than increased.

There is no guarantee that the appeals board will agree with the independent appraiser's opinion of value.  They may recommend a different value, perhaps somewhere in between the assessor's opinion and the fee appraiser's opinion.  Chances are, however, that a well supported appraisal will provide a basis for a lowered assessment at, or near, the opinion of value of the qualified independent appraisal expert.  Savings on property taxes, not only for the current year, but perhaps for years to come, could be substantial, maybe thousands of dollars, and be well worth the cost of the appraisal.

Call me at (408) 287-4686, or another appraiser you feel to be competent, for a quick phone consultation.  You may end up paying a lot less in property taxes if you have a successful assessment appeal.  The deadline to file for an appeal is September 15.

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Posted by Dana Grover on August 11th, 2009 3:40 PMPost a Comment

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