What’s the story on the new tax assessments?

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Values down 1.3% on average for our area

Late last week, the King County Assessor began sending out 2011 property-tax assessment notices to property owners in the Madison Park/Madrona/Leschi neighborhoods, collectively known (to those who follow these things) as Area 14. So by now most of us have received the news that our houses are not worth what they once were, at least in the opinion of the government.

Unlike last year, however, when 94% of local property owners saw their properties decline in value by a uniform 12.3% year over year, the 2011 valuation notices show changes for individual properties that are all over the map. Though the average property in Madison Park and contiguous waterfront neighborhoods declined by 1.3% this year, many property owners have been shocked to find that the government thinks their property is worth more than it was worth at the last assessment, even though no property improvements may have occurred.

The reason for this is that the Department of Assessments this year made a physical inspection of the area neighborhoods rather than relying solely on property-sales information and other statistics in order to make the assessments. The County is required to do physical inspections of individual neighborhoods at least once every six years, according to Stan Roe, Assessment Units Supervisor. And this year it was our turn. As result, assessors fanned out through the area and did drive-by inspections of the various residential properties. “Usually we do see a lot of changes when a physical inspection is done,” says Roe. It is considered a more accurate way of analyzing properties than relying on statistics alone, he noted. The stated goal is to create uniformity and equity in the assessment process.

Some homeowners, however, are certainly questioning whether their individual assessments are fair. For the County as a whole, the Assessor’s office is currently receiving between 200 and 300 calls per day from people objecting to or raising issues about their new assessments. Undoubtedly, based on some emails I’ve received, some Madison Parkers are among that group.

Several residents have reported large increases in their land values, from 20% to 37.5%. I was dumbfounded when reviewing my own assessment notice. The Assessor had decided that our land value had declined by 98.5% while the building value had increased by 67%, for an overall property-value increase of 2%. What was that all about? “A mistake,” says Roe. One of the physical inspectors apparently hit the wrong button when inputting the information about my property into his laptop. Mistakes happen.

But what about the changes that are not the result of an error? The valuation adjustments are simply an attempt to get at a “true and fair value of the property as of January 1, 2010, based on comparable sales” says the Residential Revalue Report recently issued by the Assessor for our part of town. Noting that the area is “extremely diverse,” the report cites the fact that recent sales prices for non-waterfront homes here ranged from $350,000 to $5,925,000. What the property assessors try to do, says Roe, is make sure that for valuation purposes properties that are similar are compared to each other rather than to dissimilar properties.

One way to create uniformity is to evaluate land values by neighborhood rather than for the area as a whole. The Assessor recognizes eight such units in our area, including Broadmoor, Madison Park (primarily north of E. Madison Street) and Washington Park/Denny Blaine. See map above for details of these neighborhoods (click on map to enlarge). Fair comparisons supposedly result from treating all of the non-waterfront land within these neighborhoods as of equal value based on equal size. For example, if you live in Madison Park (neighborhood 80 on the map), your land value will be $463,000 if you have a 4,000 sq. ft. lot, and it will be $303,000 if you have a 2,000 sq. ft. lot. For comparison purposes a 4,000 sq. ft. lot in Washington Park/Denny Blaine (neighborhood 70) would be valued at $551,000 and a 2,000 sq. ft. lot would be valued at $361,000. Broadmoor (neighborhood 90) actually has lower land values than Washington Park.

These land values will hold for everyone in that neighborhood with an equal-size lot who does not have a territorial, water or mountain view. Upward adjustments are made for lots with these characteristics, and a different valuation method is used for waterfront lots. An “excellent” view of Lake Washington, for example, could add up 80% to the value of a particular lot. A waterfront lot in Washington Park, on the other hand, would have an increase in value of $30,000 per waterfront foot. More than 37% of the lots in our area have some degree of view, usually of Lake Washington and Mt. Rainier.

Downward adjustments, meanwhile, are made for lots impacted by arterials. A lot on a street with “extreme traffic noise” would decrease the value by 30% under the Assessor’s valuation model.

Once the land value has been decided, the total property value is determined. As part of the assessment process, each residence is effectively compared to the properties that sold during the three-year period from January 2007 through December 2009 (these sales are then “time adjusted” to create an apples-to-apples comparison of the data effective for January 1, 2010). Incidentally, the average sales prices of non-waterfront properties in our three neighborhoods were $1,318,857 for Madison Park (exclusive of Washington Park and Broadmoor), $2,025,929 for Broadmoor, and $2,438,794 for Washington Park/Denny Blaine.

The basis for comparison of sold properties to the rest of the properties in the area includes such elements as a home’s grade, condition and age. Grade refers to the quality of the construction, and there are thirteen categories. Our area primarily has residences in Grades 8 (just above average construction and design, using better materials) and 9 (better architectural design of high quality). The highest-quality homes, Grades 10 and up, are scattered throughout the area but predominate in Washington Park/Denny Blaine.

Condition as a valuation factor is relative to both age and grade, and it falls into five categories from Poor to Very Good (“excellent maintenance and updating on home”). Finally, the house’s age is taken into consideration. Interestingly, while over half the houses in our area were built before 1940, almost 20% were built within the last 20 years. Of the 3214 houses included in our assessment area, 328 (more than 10%) were built within the last decade.

These, then, are the elements which make up the assessor’s opinion of the value of your property. Obviously an individual property assessment can be incorrect with regard to any of these elements. That’s why there’s an appeals process, one which is spelled out on the back of each assessment notice.

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Note that the valuation process works this way: the Assessor makes a determination of the land value and then the overall property value. According to Roe, this is a requirement of State law. Once the overall property value is decided based on comparable recent sales activity, the difference between the total property value and the previously determined land value then becomes the value of the "improvements" (i.e. the house). Or, as Roe explains, "this residual value is what the house is contributing to the total value of the property." Because this is essentially a plug number, it can change dramatically from one physcial assessment to another. Keep in mind that the only number that makes any difference to your ultimate tax obligation is the total value of the property. This is because land and improvements are taxed at the same rate.

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To put your property in perspective, note these statistics for Area 14 as a whole:

Average Land Value in 2009: $606,900
Average Land Value in 2010: $623,900 (up 2.8%)

Average Value of Improvements in 2009: $556,100
Average Value of Improvements in 2010: $524,400 (down 5.7%)

Average Total Value in 2009: $1,163,000
Average Total Value in 2010: $1,148,300 (down 1.3%)

If the change in your valuation assessment is radically different from last year’s and you think there has been a mistake, there are three Assessor office staffers waiting to receive your call: (206) 296-7300. As noted, Area 14 is an “extremely diverse area” in the opinion of the Assessor, so determining values for Madison Park/Madrona/Leschi is a bigger problem than it would be in a relatively uniform neighborhood.

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That’s the story anyway.