It’s that time of year again. The county where your real property is located is probably going through its annual revaluation of real property for tax purposes (to be effective the following tax year).
You may likely have already received a visit from the county’s appraiser and soon, you may be receiving a Notice of Value in the mail if the appraiser determines that your property value has changed.
Upon reviewing the Notice of Value, you may be left wondering how the local assessor came up with that dollar figure. Having some familiarity with basic assessment terminology and procedures will help you understand the principles that guide your local assessor’s determination of the value of your property. In addition, having this basic knowledge will help you decide whether to pursue an appeal of that valuation by filing a petition for review.
Unless property is statutorily exempt from taxation, Washington State law requires real property to be assessed at 100 percent of its true and fair value, according to the highest and best use of the property.
Under Washington statutes and administrative regulations, the “true and fair value” means the market value (also referred to as the “fair market value”), which is the amount of money a buyer of property willing but not obligated to buy would pay a seller of property willing but not obligated to sell, taking into consideration all uses to which the property is adapted and might in reason be applied (also referred to as the “highest and best use”).
Essentially, the fair market value is the price that most people would pay for your property in its present condition. Determining the fair market value means that the local assessor must also know what similar properties are selling for and what the cost to replace the property would be.
Washington law allows the assessor to use several different methods for valuation or combinations of those methods. There are three valuation methods used by the assessor to determine the true and fair value for real property: (1) the market/sales approach, (2) the cost approach, and (3) the income approach.
For residential properties, the market/sales approach is typically used. The market/sales approach compares the property with similar properties having similar characteristics that have recently been sold. The cost approach is typically used to value new construction and this method uses an estimate for the replacement cost of structures, making adjustments for depreciation and obsolescence. For commercial and industrial property, the income approach is often used, which analyses a property’s value based upon its revenue-generating capacity and potential.
As an overarching principle, the Washington Constitution includes a “uniformity clause,” which provides that “taxes shall be uniform upon the same class of property with the territorial limits of the authority levying the tax … All real estate shall constitute one class.”
What does “uniform” mean? This means that taxes must be the same on real property of the same market value. Uniformity requires both an equal rate of tax and equality in valuing the property taxed. Many other states have differential tax rates or different value standards that depend on the separate classifications of property. However, in Washington, such a system would not be constitutional.
The assessor offices in each of the counties are responsible for determining the fair market value of all taxable real and personal property in their county. Up until recently, according to Washington state law, the county assessors were required to do revaluations a minimum of every four years. For many years, assessment practices varied widely across the Washington State, resulting in both constitutional and statutory changes intended to improve adherence to requirements for uniformity.
Frequent revaluation of property during a time when property values are rapidly increasing improves uniformity because property assessments more closely reflect the current value. Otherwise, recently revalued property is closer to current market values while property that has not been revalued lags far behind the market value.
In addition, less frequent revaluation cycles can create rapid increases in property tax assessments. For example, if a property in a rapidly increasing market is revalued every four years, the assessed value will more dramatically jump after revaluation. To address these inequities, the Washington Legislature recently passed a bill which requires annual revaluations in all counties starting in 2014.
As such, our local counties now conduct valuations every year to appraise and determine the fair market value for properties within their jurisdiction as of Jan. 1 of the assessment year. Except with respect to new construction (inspected during the summer months), the Jan. 1 assessed value is used as the basis for calculating the property taxes that are to be levied and paid in the following tax year.
As you can tell, the above definition of “true and fair value” and the various valuation methodologies all have multiple elements, many of which have great latitude in interpretation and application.
Determining whether your local assessor’s valuation of a particular property is truly the fair market value requires informed analysis. Understanding the concepts of fair market value and uniformity will help you understand the analysis your local assessor should employed in reaching the valuation set forth in your Notice of Value.
Clay Gatens is an attorney with Jeffers, Danielson, Sonn & Aylward, a Wenatchee law firm.