On Friday, the Assessor’s Office will mail 475,296 Assessment Notification letters which detail each property’s assessed value as of January 1, 2011 (lien date). Each notice serves as the basis for the calculation of property taxes contained in the property tax bill to be mailed in September. The overall number of properties assessed below their purchase price increased five percent to 124,148. The total reduction in assessed value of these properties increased thirteen percent to $27 billion. All reductions were assessed proactively by the Assessor without a single taxpayer request. Twenty-seven percent of all single family homes, and forty-nine percent of all condominiums are assessed below their purchase price, primarily due to the collapse of the residential real estate market.
“Basically, it means our economy has not yet recovered, due to the record level of distressed sales or foreclosures,” said County Assessor Larry Stone. “To the extent there is any good news for homeowners, it is that the slope of the decline is less severe, and some communities are beginning to turn the corner.” For seven percent of residential properties in which the assessed value was previously reduced, the market has improved to where the value now exceeds their purchase price. In these cases, the Assessor is required by Proposition 8, passed by voters in November 1978, to restore the assessed value to reflect improving residential market.
“The fact that the assessed values of some properties are being restored and others are reduced, can be very confusing for property owners. Most property owners assume that according to Proposition 13, the assessed value of a property can increase no more than two percent annually. That is not entirely true,” said Stone. When the market value of a property declines below the previously established assessed value as of January 1 each year (lien date), the Assessor is required to reduce the assessed value to reflect the lower market value. However, when the real estate market recovers, the Assessor is required to “restore” the assessed value consistent with the market. Proposition 8 provides that property owners are entitled to the “lower” of the fair market value of their property as of January 1, 2011, or the assessed value determined at the time of purchase or construction, and increased annually by either two percent or the annual California Consumer Price Index (CCPI), whichever is lower. This year the CCPI is 0.753 percent.
The assessed value of 45,773 residential properties will be increased to reflect market improvement. In addition, the assessed value of 75,271 properties remain either unchanged or declined further, reflecting continued deterioration of property values in some geographic areas of the County.
To the extent there are any trends, they appear to be geographically and value based. Lower priced, entry level housing, particularly in lower income communities which experienced the biggest decline during the past three years, actually saw fewer properties in a decline status. While counterintuitive, this circumstance is the result of either foreclosures or distressed sales by property owners in default. As properties move from foreclosure to acquisition by new owners or investors, they are reassessed, albeit usually at a far lower value.
For the first time, home values in some high income areas experienced a steeper rate of decline compared to the previous year. For example, last year in Los Altos Hills 342 properties were assessed below their purchase price for a total reduction of $320 million. This year, the assessed value of 471 properties was reduced and the total amount of reduction jumped to $1.4 billion.
The Assessor’s Office also reduced the value of 1,954 commercial and industrial properties in response to the declining market totaling $6 billion. “Recent signs of recovery in the office and commercial sectors, particularly in the northern portions of the County, may not be reflected until next year as the Assessor’s Office must establish the market value as of January 1, 2011,” said Stone.
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