Another day in the grocery line.
The Twinkies, the T-bones, the toothpaste — all the items of your healthy life — go through the scanner. Beep, beep, beep. $100 total. (Wow, $100 — even. Maybe you should go on “The Price is Right.”)
The kindly checker turns to the computer at his side and types in a few numbers.
“All right,” he says. “We’ll charge you sales tax on $110.”
“What the ... ,” you say, pointing to the register. “It is $100. See?”
“Yes, $100 is the price, but our model here,” the checker says tapping the computer, “says $110 is the real value of your purchase today.”
A scratch of the head.
“The model?” you ask.
“Yes, the model,” the checker says. “We ran your purchase today through the model, and it says most people have been paying about $110 for all the items you bought. So we need to charge you tax on $110.”
Never would happen, right? Well, unless you change “sales tax” to “property tax.” In that case, it happens all the time.
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The Journal-World obtained a copy of a Lawrence Board of Realtors database that lists the address, closing date and sales price of every home sold in Lawrence by a Realtor in 2010. An analysis found that homes often had tax values higher than what the homes sold for, even though they sold just a few days prior to when the county appraiser set its value.
The Journal-World then examined all the homes that had a closing date of December 2010 and compared the sales price of the property with the Jan. 1, 2011, appraised value set by the Douglas County Appraiser’s Office.
Perhaps a quick reminder about our tax system here. Each county has an appraiser who is responsible for determining the property tax value of your home. The law states the tax value should be the fair market value of the property on Jan. 1 of each year. The Journal-World chose to look at December 2010 transactions, because those sales closed just a few days before the Jan. 1, 2011, date.
If you assumed the sales prices of the homes would be equal to the tax values, you assumed wrong. In fact, that was the least likely outcome.
• Of the 49 valid sales in December (we removed foreclosures because sales prices on foreclosures do get crazy), 28 of the homes had a tax value above the sales price.
• Eleven homes had a tax value under the sales price.
• The remaining 10 homes had a tax value equal to the sales price.
To break the data down more, the Journal-World looked at how much above or below the sales price a property was valued at by the appraiser.
• Of the 28 homes that had a tax value higher than the sales price, the difference ranged from a low of 0.3 percent to a high of 30.7 percent. The median amount was 6.2 percent.
• Of the 11 homes with a tax value below the sales price, the difference ranged from negative 0.01 percent to negative 6.5 percent. The median was 1.4 percent.
Douglas County Appraiser Steve Miles doesn’t dispute the numbers. He says that some of the homes that have values of 15, 20 or even 30 percent higher than the sales price might be successful in appealing their values and having them lowered. He doesn’t claim the model is perfect, and he says that his office could have incorrect information about a home (like it has three bathrooms instead of two) that would throw off a value.
But Miles said homeowners should not expect to have the tax values of their homes lowered just because they can point to a recent sales contract that shows the property sold for less than the tax value.
The system isn’t designed to work that way, he said.
“If they bring in a sales contract, I have instructed my hearing officers not to change the value just on that basis,” Miles said. “They (Miles’ staff) are to do some more research and ask some more questions about the sale. But if the sale price and our value are pretty close, we’re probably not going to change it.”
Miles said he can understand how that can be frustrating to property owners. After all, the home sold on the open market, and the system is trying to determine a fair market value. But he said the idea of a value isn’t that simple. To prove his point, he goes back to the grocery store.
“A bag of oranges at Dillons may be one price, a bag of oranges at Checkers is another, and a bag of oranges at Hy-Vee is another yet,” Miles said. “They’re all basically the same bag of oranges, so what’s the value?”
• • •
County appraisers are governed by a system set out in state laws. State officials say that the appraiser’s office in Douglas County does a good job of following it.
“I think Douglas County does a better job than most counties in Kansas of coming up with a fair value,” said David Harper, the acting director of the state’s Property Valuation Division, which oversees many operations of county appraisers.
But that doesn’t mean the Douglas County way of thinking is the only way of thinking. In talking with appraisers, you’ll find that there is a philosophical split in the profession.
Miles and many other appraisers believe if you assume a sales price to be the home’s value, you run the risk of messing up your model over time.
And that’s a big risk because, no matter what, an appraiser is going to rely on the model to value most properties in any given year. That’s because in a good year only 1,500 homes are going to be sold in Douglas County. Miles and his staff are responsible for putting a value on about 40,000 pieces of property.
In the other camp is Mark Hixon, the Shawnee County Appraiser and a 29-year veteran of the profession. In Shawnee County, if you buy a home somewhere near Jan. 1 for $150,000, the chances are “very good” that your tax value for the next year is going to be exactly $150,000 or perhaps a little less than that (if the model says it should be less).
But it would be rare that the tax value would be higher than the sales price if the sale occurred near Jan. 1. (If the sale were several months before Jan. 1, he might adjust the sale based on how the market has changed, but he would still use the sales price of the home as his foundation rather than a number generated by a model.)
Hixon and those like him are sometimes referred to as “sale chasers” in the industry. That is considered a derogatory term in the profession, but Hixon doesn’t know why.
“I think a sale is at the heart of what market value is,” Hixon said. “An arm’s length transaction typically is the best indicator of the value of a property.”
Hixon points out that county appraisers likely don’t know as much about a particular piece of property as the buyer and the seller do. For example, county appraisers typically do not go inside of homes to assess their interior conditions. Buyers certainly do.
• • •
Miles knows that he’ll never make everyone happy.
Sure, he could just take the sales price of every home sold and make that the tax value, even though the model says it is something different. It probably wouldn’t be the end of the world.
But then what happens when a neighbor of one of those homes, who has a very similar house, says his tax value ought to be the same as his neighbor’s? The model says it shouldn’t be, but now there’s one sale — Miles stresses just one sale — that says it should be changed. Miles says he can’t make himself do that.
“If I could tell you the exact amount that everybody’s home was going to sell for, I would be a millionaire and would be sitting somewhere else,” Miles said. “But I can’t, so I have to be fair to everybody. I have to be fair not just to the person who recently bought a home but also the person next door who has no intention of selling their home. I have to look at all of them with the same eyeballs.”
But he gets that it is frustrating. That frustration shows up in the form of property owners at his office more than he would like.
“I just try to talk to those folks about the fairness to their neighbor argument,” Miles said. “But at that point, nobody’s really concerned about their neighbor. I’m not always successful in making people feel good about the process. That is for sure.”