Dark Store Theory - Big Box Vs Assessors & Communities

[timd354]

That's the fly in the ointment.

Based on 0.052 millage, 20% ratio, my county raised $240,000,000 in property tax. (2011) about $2400/deed/mortgage filed.

The average owner refis or sells every five years. We had about 125,000 deeds morts filed. Average sale price is over 200,000. Say mtg averages $160,000

So 50/50 mortgage/deed over five years means annual average = $36,000. $2400/36000 = 6.7% tax. And much lower assessment costs.

A 6.7% tax on both deeds and mortgages? That will never happen because the bankers and realtors never would let it happen and even if it ever did happen, virtually all of the refinance mortgages would never happen and many deeds would not happen either, so you would never raise the amounts that you think you would raise using your static analysis.

Think about it, a 6.7% tax on deeds and mortgages would mean a $24,120 tax levy on a $200,000 sale that was financed with a $160,000 mortgage.....ain't ever gonna happen

 

[Terrel L. Shields]

That will never happen

Maybe, but I pay 9.75% sales tax now in some towns, more if they have restaurant tax. When WJC started as Gov statewide tax was 3%...so if you told the ST would be 9% , would think you crazy.

 

[timd354]

Maybe, but I pay 9.75% sales tax now in some towns, more if they have restaurant tax. When WJC started as Gov statewide tax was 3%...so if you told the ST would be 9% , would think you crazy.

9.75% sales tax is pretty hideous to be sure and I am sure that just kills business in some of those high tax towns. Where I live, the sales tax is 6% but food (unless prepared) clothes, and pharmaceutical drugs are exempt from the tax. The sales tax over the city line (less than 1 mile from where I live) is 8% and the sales tax in the state of Delaware (20 minutes from me) is zero...gee I wonder why there are a bunch of electronics, appliance, building supply, jewelry and furniture stores practically right on the border on the DE side, lol.

 

[Elliott]

Look at the real world for a moment. Amazon has a trillion dollar cap. It won't be the first time local assessors win a case to suck the last dollar out of real estate and are left with a dilapidated mall or vacant storefronts along main street. The assessor always wants to be right and never cares about the real affect it has on the local economy. Enjoy the big win and the rust.

 

[Terrel L. Shields]

dilapidated mall or vacant storefronts

Today Sears just announced closing their store in NWA mall. Hadn't been there in years. By accident went there yesterday, but they looked like a ghost town, I bought a pair of pants 1/3rd off. Everything on clearance. They were 1 anchor with Dillards & J.C.Penney the other two, looks doomed.

 

[DREA Dean]

It seems to me there are a lot of inconsistencies regarding assessments. I've often thought that the assessors want it both ways. If a property is vacant or leased at below-market rent, they want if valued as if owner-occupied and/or leased at market rent. If it is leased at above-market rent, they want to consider that income in the valuation.

 

[Gobears81]

Maybe, but I pay 9.75% sales tax now in some towns, more if they have restaurant tax. When WJC started as Gov statewide tax was 3%...so if you told the ST would be 9% , would think you crazy.

In higher tax states like IL, if RE taxes average 3% of the value, capitalizing that out at 10% suggests a sales tax of 30%, which would be allocated 50% to the mortgage and 50% to the sale if I understand your thought process correctly. You have a growing trend of buyers outright lying on transfer declarations for fear of assessors "catching on", as well as those making massive allocations for personal property/ goodwill. That trend would increase exponentially in this type of scenario.

It seems to me there are a lot of inconsistencies regarding assessments. I've often thought that the assessors want it both ways. If a property is vacant or leased at below-market rent, they want if valued as if owner-occupied and/or leased at market rent. If it is leased at above-market rent, they want to consider that income in the valuation.

Undoubtedly some truth to that, but it goes both ways for both sides. The appellants are trying to save money on taxes and will understandably take whatever argument they can to get their taxes lowered. Developers will build properties all day long for their project costs, but depending on the property type, indicate that a portion of the rents or income are intangible, and consequently, claim that the value of the real property is less than its depreciated cost. For some property types, a strong case could be made for that, maybe not in others.

 

[DREA Dean]

Undoubtedly some truth to that, but it goes both ways for both sides. The appellants are trying to save money on taxes and will understandably take whatever argument they can to get their taxes lowered. Developers will build properties all day long for their project costs, but depending on the property type, indicate that a portion of the rents or income are intangible, and consequently, claim that the value of the real property is less than its depreciated cost. For some property types, a strong case could be made for that, maybe not in others.

I agree. Sophisticated developers/owners can separate out recover of TIs, for example, under a separate "rent" agreement. One could argue that this rent is not rental income, but recovery of capital expenditures. I just appraised a property where the rent goes down after five years, reflecting recovery of TI costs. This has to be carefully considered and reflected in the valuation. I'm sure it varies depending on location, but some of our local assessment boards are not very educated or knowledgeable about real estate valuation. Nor are judges and juries, for that matter. Lots of room for errors and shenanigans on both sides.

 

[Funky Obsolescence]

This is some GREAT discussion here. Super helpful. Thanks so much for the recent Michigan vs Menards court case news from member "Michigan CG" and the article from member "EddieB".

 

[leasedfee]

Appraisers used to be able to use NOI adjustments to show the value of the income in the Sales Comparison. But that is now considered "double dipping".

It is circular reasoning to make NOI adjustments in the SCA. TAJ had an article on that (from the 90s?). It is then double dipping to then make physical/economic adjustments on top of the NOI adjustments which already reflect some/all of those physical/economic characteristics.