Latent Defect Discount Question

[George Hatch]

That's literally not your problem. It's not the question you are being asked and it's not a question you're in any position - as an appraiser - to answer.

What's the value of the property if it sells today in its current condition? That's the only issue you need concern yourself with. If the decision makers later decide not to alter the tax assessment then that is no reflection on your appraisal. If they catch you trying to second guess their decision for them then that could be a problem for you.

 

[J Grant]

@ J Grant: It is a conundrum. On one hand, it is very easy to determine the MV with a discount, but on the other hand why should the owners get an assessment discount for a repair?

They might not get the assessment discount for a repair, the tax board might deny them. So what? That is not your problem. The owners are willing to pay for a MV purpose appraisal. They might or might not be successful in their appeal.

I fail to understand why a tax appeal over a measly 25k would go to a trial as you said earlier in thread.

 

[J Grant]

@ J Grant. The assignment is uncommon because it is an escalated tax appeal with attorneys for each side; and I am hired to give them an independent opinion of value which could turn into a non-jury trial if the two sides cannot settle it. The owners have been proactive about the leak. It has only been noticed this year since we have had 3X more rain then previous years. They and their neighbors got together to choose one contractor to fix all that need it. So the appeal and the repair are proceeding in a timely manner, but both are slow processes. My scope is to appraise it As-Is, thus no subject-to.

At this level of appeal, assessments are based on market value using the sales comparison approach

what kind of non jury trial? Who goes to "trial" over a failed tax appeal for a measly 25k ? I hope you are not getting involved with nut job owners ( because next they might turn around and sue you, because that is what nut job people do, cause chaos and sue people ) or are you referring to some other legal action or the townhouse owners as a group. .

 

[John Adams]

The main reason I started this thread was to seek input if I was overlooking a theory or factor to consider.
George: Sure it is easy enough to create a report with a discounted value, but if I need to be careful because if I use the wrong approach or logic (ie the reason I am here) then the results can set a legal precedent. So I have to be thorough that I have not forgotten anything. I am not second-guessing their decision, I am making sure I am using the proper logic because my report will be the deciding factor.

J Grant: my report value will be the deciding factor. I agree the appeal amount is small, but they consider it worth it. I am happy since it pays well. The court system hires me and everyone is professional. Taxes have dramatically risen and many owners are upset. They just want their day in court to be heard which is their right.

 

[George Hatch]

Sure, you want to do a good job; but that mostly means taking the question itself seriously. Stick to the assumptions in that definition of value and you have a defensible position. Wander away or add to those assumptions and you're creating problems for yourself.

 

[Meandering]

The main reason I started this thread was to seek input if I was overlooking a theory or factor to consider.
George: Sure it is easy enough to create a report with a discounted value, but if I need to be careful because if I use the wrong approach or logic (ie the reason I am here) then the results can set a legal precedent. So I have to be thorough that I have not forgotten anything. I am not second-guessing their decision, I am making sure I am using the proper logic because my report will be the deciding factor.

J Grant: my report value will be the deciding factor. I agree the appeal amount is small, but they consider it worth it. I am happy since it pays well. The court system hires me and everyone is professional. Taxes have dramatically risen and many owners are upset. They just want their day in court to be heard which is their right.

What county?
Philly uses the current condition

Property assessments | Office of Property Assessment

Information about how OPA assesses property.

www.phila.gov

 

[Michigan CG]

You might reach out to real estate agents/brokers active in that area and get their thoughts on the situation.

Note what Pete says above. This is one of the six acceptable ways to derive an adjustment.

You sound confused about trying to get a tax appeal in assessed value and your role as an appraiser to perform a MV purpose appraisal.

How many tax appeal situations have you been involved with? Your posts tell me zero.

I am using the common definition of MV which would an include a discount for the wall repair, but if this is true, then everyone who has a substantial house repair could request an assessment discount which is illogical.

First of all make sure you are using the correct definition for this type of assignment. The MV definition for lending or for the IRS or for certain states are different and especially in tax appeal cases.

Most definitions of market value include words about the buyer and seller being well-informed or acting in their own best interest. Find out the correct definition used in PA.

We all learn in appraisal 101 that cost does not equal value and it is also the case that the cost to cure does not equal the discount.

If a house needs a new roof and that cost is ~$25,000 then a typical buyer MIGHT say, OK, I will buy this house for $25,000 less than an almost identical home or they may say, I will pay $30,000 less than the house with a good roof because of the hassle of finding a contractor and dealing with the mess and headaches of the project.

I feel like I am forgetting to factor-in something.

You might be forgetting the "hassle factor" or "EI". I think your situation might be more serious than a roof in that it is a water penetration problem and it could be more of a market detriment than a simple roof. "EI" takes into account the cost, risk, time, talent and management of doing something.

The COST might be $25,000 but what buyer wants to take on the risk that it might be more expensive without being compensated for that risk and ALSO the time to address the problem, the talent to take on the project (not getting screwed by high or low bids, etc.) and the management of taking care of the problem?

Around here the cost is multiplied by 10% for contingency which also has to be factored in PLUS EI which for "typical (your case is most likely not typical) EI is 20% or $20,000, whichever is more.

As a wild guess, your situation MIGHT call for a $50,000 reduction in value, but that is a wild guess based on what you have provided and based on MY market.

Getting back to their request for a reduction in taxes based on a $25,000 reduction in assessed value seems kind of goofy to me. Around here that would only reduce property taxes by at most $400/year; north of me it would be about $800 at the tippy top. I assume your fee is a whole lot bigger than that.

 

[KHS445]

Just a couple of questions.
- What is the effective date of the tax assessment? That should be your "as is" date.
- When was the extent of the damage and the required corrections determined?

If the extent of the damage and the necessary corrections were not known until after the effective assessment date, it will probably be a tough argument to win. On the other hand if the amount and extent of the damage was known as of the effective date there shouldn't be an issue with your valuation if done creditably. Now winning the assessment process maybe another issue.

As others have suggested I would look to alternative developments where some of the sales demonstrated some sort of known damage. While it may not give you dollar support for an adjustment, it should give you percentages and possibly some insight as Mich CG mentioned as to what the market reaction is vs. the actual cost of repair.

Absent all of this I would use the best comparable sales available, then make an adjustment in the grid based on the known cost (or market reaction if known) of repair/replacement. You are trying to estimate the market value of the subject, hopefully it is as of the effective date of the tax assessment. If the defects were a known issue at the time you would be justified including a cost to cure adjustment.

The real task is going to be thoroughly explaining how you valued the property and why you made the adjustments you did. While there are a variety of definitions of market value, nearly all of them include some form of a willing and knowledgeable buyer and seller. If the buyer knows there is an issues they are going to adjust their offer accordingly. If the seller is realistic and knows there is an issues their options are to fix the issue or reduce the price and let the buyer deal with the issue.

Good Luck.

 

[glenn walker]

This is just one weird post and has the smell of some back water attorney trying to establish a court case allowing owners to claim property conditions can be deducted form tax assessments ? First each State-County has different ways of assessing taxes but I have never encountered any that would buy into a claim of X-$ based on a construction defect. If this is truley the case and County lost it would open up a whole new way for homeowners to lower their property taxes. Hell I am already writing out my wish list of deferred maintenance, new roof, and maybe even some new lawn equipment can be thrown in. But instead of going for a stupid $25K I am going all in at $100,000 LMAO

 

[Renee Healion]

Tax relief is one temporary and hardly sufficient remedy for property owners with crumbling concrete here. Of course, with government administered town-by-town in this state, not countywide, the cost to the town tax base adds up. Assessment reduction just shifts the burden to other taxpayers. The defective concrete, unlike the OP's subject, cannot be repaired but must be replaced. That involves disconnecting the utilities and secondary structures, lifting the house, demolishing existing foundation and removal, replacement of foundation and resetting of the house. Typical cost can be close to the value of property. So yes there are types of defects that can be addressed with assessment reductions. In this case, almost every insurer declined to honor claims. Homeowners were stuck as the defects became evident right about the time many HOs were paying off their mortgages, so assessment reduction was all many had.