I read with interest the Winston-Salem Journal article about the upcoming property tax revaluations for Forsyth County homeowners.  It was interesting because it quotes Pete Rodda, the Forsyth County Tax Assessor, as saying that we should be ready to see higher valuations than we had four years ago in 2005, thus we should also expect higher tax bills.  Given what's happened this year it's easy to believe that we'd actually have lower valuations, so if what  Mr. Rodda says is true then it's good that he gets out in front of this issue before the poop hits the fan.

Mr. Rodda also said that his office is delaying the assessment until February so that they have all 2008 sales data, which he thinks is prudent given how much real estate value is declining right now.  I'd have to agree with him there.

What worries me is that the number of actual sales is also declining which means that the recent lower sales prices may not effect the average sales prices of a neighborhood because so many more sold at higher prices two, three and four years ago.  For instance if only four houses sold at $150,000 in a neighborhood in the last four months, but over 50 sold at $200,000 over the last four years then the rate is still going to skew to the higher number.  Here's the math:

50 houses sold at $200,000 = $10,000,000
4 houses sold at $150,000 = $600,000
$10,600,000 in total sales divided by 54 houses sold = $196,296 average sale price.

This ignores the fact that literally dozens of homes in the neighborhood are currently listed at $150,000 or less but can't be sold because there are no buyers.  That means that in reality the homes in the neighborhood are probably worth less than $150,000 in today's market.  Yet the average homeowner will be facing a tax bill based on a valuation closer to $200,000 than $150,000.

To see if I was totally off base I checked out the County's website to see what they say about revaluations.  Here's an excerpt from the web page:

The appraisal staff of the Tax Assessor's Office has divided the county into approximately 1,300 appraisal neighborhoods.
These neighborhoods are homogeneous in that the parcels within the neighborhoods share many common characteristics and are
affected by similar influences. In conducting a revaluation, the appraisal staff reviews all recent sales of real property
which have occurred within each neighborhood. This massive analysis of recent sales culminates in a uniform schedule of
values, standards and rules which is applied to each parcel of real property in Forsyth County. The purpose of the uniform
schedule is to insure equity in valuations.

It
would not be difficult to simply appraise a given property at its most
recent sale price. This is not practical because many sales are not
arm's-length transactions. Sales between family members, related
corporations, gifts, etc. do not usually represent market value. The
needs and compulsions of buyers and sellers also influence sale prices.
For example, a home may sell for less than its market value because a
sudden job transfer motivates the seller. Conversely, a home may sell
for a higher amount to a new resident moving in from a region where
home values are much higher. Analyzing all recent sales allows the Tax
Assessor's Office to account for unusual circumstances such as those
described above and develop a uniform schedule of values, standards and
rules. The application of the schedule may not exactly match every
recent sale price; however, the schedule insures that each parcel of
real property will be treated in a similar manner.

Forsyth
County and the municipalities within the county adopt a budget each
year. The tax rate supporting the budget is determined by the budgetary
needs of the local government. Typically each local unit of government
reviews the budget requests of their departments, determines how much
revenue is available from sources other than the property tax, and then
determines how much revenue is necessary from property taxes to balance
the budget.

That last paragraph also worries me.  In a time of shrinking budgets I doubt we'll get a sympathetic ear from the county commissioners in terms of reducing our tax burden.  When I lived in Northern Virginia and we were experiencing incredible increases in valuations during the real estate bubble the county would regularly reduce the tax percentage so that our tax hit wouldn't be too bad on any given year.  It still hurt, just not as much as it would have.  I don't think we have a snow ball's chance in hell of that happening here.

My final point is that in the article Mr. Rodda is quoted as saying that they are going to put the valuation tool up on their website so that we can all see for ourselves that our property values have indeed increased.  That's fine, but that won't tell us what other factors underly the numbers.  Is it just comparable sales prices, or are there other data points incorporated in the numbers?  If it's simply on sales then I think they will have a problem because in the real world home values aren't simply a function of comparable sales in the neighborhood.  Other factors include number of homes in the neighborhood that are in foreclosure, the number of homes that are for sale in the neighborhood (and their listing price) and the average length of time that a house takes to sell.