Accurate property revaluations an elusive goal

The last time New Hanover and Brunswick counties did a revaluation, the property market both locally and nationally was in overdrive.

Cheap money and rampant speculation in the mid-2000s had sent some property values skyrocketing, especially along the coast, and complex mortgages with no-money-down options and variable interest rates were all the rage.

What a difference four years and a worldwide economic meltdown can make.

Now, prices are cratering in those very same areas that were red hot, and the only properties that are changing hands are already foreclosed or in serious distress.

The good times, when some assessed values on barrier islands tripled as the Jan. 1, 2007, revaluations in New Hanover and Brunswick came out, seem like a distant memory.

The question now facing tax officials is how to correctly value a real estate market as of Jan. 1, 2011, that has yet to stabilize.

“It's making it a whole lot more difficult,” said Roger Kelley, tax administrator for New Hanover County. “It's hard to hit a market that's not there.”

Tax base undercut

The values decided on by the county tax offices could have dramatic impacts on local communities – and taxpayers.

Lower tax values could affect how much a property owner can borrow or sell his home for, given that the assessed value is often one factor used by appraisers.

But a lower assessed tax value doesn't necessarily mean your tax bill will drop, too. As a result, the broader impact could come in local budgets and tax bills.

That's because local governments will have to set their tax rates after the new property values come out. And if the overall value of the property base in a town or county is flat or decreases, which is likely this time around, officials will have to hike their tax rates just to stay at current budget levels.

“When it's a down market like we're seeing today, that's when the pressure is really on the levying bodies because they're the ones who have to make the tough decisions,” said Tom Davis, tax administrator for Brunswick County.

The likely decline in property values comes as consumers tighten their financial belts and revenue declines from other sources, such as sales and personal property taxes.

But the tough political decisions on whether to raise taxes or cut services – at least due to the reassessment – are still at least a year off.

First, tax officials have to figure out how to determine “true” market values in a down market.

A mixed bag

Davis said property values in his county's coastal areas, where second homes and retirement properties are popular, have been shedding value.

But inland, more mixed neighborhoods like those around Leland seem to be holding their own, even increasing in value in some cases as the commuter towns continue to benefit from their proximity to Wilmington.

“It's really a mixed bag, and really changes from neighborhood to neighborhood,” Davis said.

New Hanover's Kelley said homes under $300,000 seem to be retaining their value, with some middle-class neighborhoods even seeing an appreciation.

“It's between the $300,000 and $1 million values that we're really seeing the hurts,” he said.

Adding to the difficulty of price-setting properties has been the explosion in foreclosed properties, which help pull prices down since sales usually involve at least one distressed party.

Still, ignoring them or classifying them as anomalies isn't realistic.

“We have some areas where we don't have anything except foreclosures, and those definitely have to be considered because that's the market,” Kelley said.

Better to wait?

Joe Silver, tax assessor for Davidson County and president of the N.C. Association of Assessing Officers, said the reassessment predicament is a hot topic among the state's tax officials.

Silver said that some counties, including his own, are delaying revaluations scheduled to take effect next year because it would be a money-losing proposition.

“If we're going to be flat at best and doing one, even in-house, can cost at least $500,000, why do it if you're going to lose money?” he said. “I've informed my commissioners that I don't really see us needing one until 2013 or even 2015.”

Kelley raised the same argument with the New Hanover commissioners last year.

But the board declined to delay the revaluation, instead deciding to stick to the four-year cycle.

Their reasoning included the problems that had cropped up when the county failed to do one between 1999 and 2007. That led to the huge increases when the market was finally reassessed, and the current skewed values – especially in the county's three beach towns – between what properties are listed at on the tax rolls and what their current market value really is.

Keeping assessed values in tune with market values, and thereby spreading the tax burden fairly, is the rationale behind periodic revaluations.

But waiting eight years to revalue probably worked out for the best for Pender County. It's also doing a revaluation for 2011 but missed out on the spike and slump in numbers the other counties are grappling with.

Kelley and Davis both said that during this downturn they've heard numerous appeals from homeowners to have their property's tax value reassessed to reflect the dismal market conditions.

But the tax officials say state law doesn't allow tax officials to tweak values between revaluations.

Gareth McGrath: 343-2384

On Twitter.com: @Gman2000