Revaluations squeeze home, business owners

By Rich Fowler and
Margot C. Lester
Staff Writers

It wasn’t that long ago that seeing a rise in your property value indicated a good return on investment. But the challenging economy has turned that mentality on its head.

“In our normal circumstances, people would be happy to see the value of their house go up,” said Mark Zimmerman, owner of Re/Max Winning Edge in Chapel Hill. But almost as soon as Orange County’s quadrennial property tax revaluations began arriving in the mail, there’s been an ironic hue and cry from property owners who’ve seen their values rise dramatically.

“It’s an odd situation for people to say, ‘Please say that my wealth hasn’t increased as much as you say it has,’ and that’s because there’s out-of-pocket consequences to it,” he said.

Those consequences arose primarily from two aspects of the revaluation process that produced some questionable results.

First, sufficient market data was lacking for some areas that saw few or no sales during the revaluation period. In these cases, the assessment team uses a set of tables and formulas to make the valuation. The bulk of this year’s issues occurred because the revaluations began two years ago, when the real estate market was up and property of all types was selling at high prices. Last August, before the local housing market really tanked, the average Orange County home sale price was $344,000. By January of this year, it had plunged to $291,000. Commercial property values also dropped over that period.

And there’s the rub: Many properties are now valued far higher than the market – and owners’ stretched wallets – will bear. That leaves many owners wondering if their revaluations are accurate.

“My concern is that they’re hitting the valuations at the peak of the market,” says Marc Pons, owner of Chapel Hill Tire. The value of all three of his service locations increased, some dramatically. “At this point, nobody knows what’s going to happen. Everybody’s suffering right now. It just doesn’t seem like this is the right time to be doing it. “

Mostly accurate

The Orange County Tax Assessor’s office reviewed values on 53,000 properties countywide; 19,591 were residential parcels in 290 neighborhoods. One-hundred-forty-three neighborhoods consisting of 10,517 properties saw revaluations in excess of the 22 percent county average. Another 147 neighborhoods consisting of 8,782 properties were revalued below the county average.

Zimmerman and some of his colleagues have been doing comparative market analyses for homeowners who think their reassessments were inaccurate.

“For people in established neighborhoods, we’re not seeing that the reassessment numbers are off an awful lot,” he said. But there are some exceptions. “Where there’s better information, they’re getting closer; and where there’s less information, there can be some pretty wide swings,” he said.

Orange County property owners have until March 31 to appeal their revaluations. So far, the assessor’s office has received more than 1,500 requests for review.

‘Get ready to move’

Thirty years ago, Tom Rose and his wife built a house on Lakeshore Drive in Chapel Hill for less than $300,000. In January, the retired couple discovered the tax value on their home had gone up from just under $698,000 in 2005 to $1,107,000 in 2009 — a 58 percent increase. Rose says that the value of the house only went up 20 percent, but the value of the land it sits on – two-thirds of an acre on Eastwood Lake – doubled from $300,000 to $600,000.

Rose has already appealed his revaluation. “We’re not contesting so much the increase of the value of the house so much, but we’re going to the mat over the land. I am planning right now on going to the next step. And if that doesn’t work out, I’m going to take it to Raleigh.”

And if he loses his appeal?
“My realtor said, ‘Get ready, Tom, for something around $25,000 in taxes.’ I’m paying $13,500 now. So I said to my wife, ‘Get ready to move.’ We can’t live under those circumstances,” Rose said. “I’m not saying the house didn’t increase [in value], and that’s wonderful. But I don’t have the income. I’m serious when I say I’ll have to see what my tax bill looks like; and if it’s more than I can handle, which is what I suspect it might be, I will have to move, and I will move out of this county.”

Business impact

Pons was surprised by the increased valuations at his two Chapel Hill locations on West Franklin Street and University Mall (a third location is in Carrboro).

“The Franklin Street service center, which is an unimproved property, went up 84 percent. That’s like $70 per square foot of land,” Pons said. “The East Franklin location went up 49 percent.” He’s appealing the revaluations.

He guesses the West Franklin increase was based on one high-profile transaction.

“There was one sale for $70 per square foot in the area – it was Spencer Young [owner of the Courtyard] when he was trying to find a parking lot. It was a desperate buy and now they’re in foreclosure,” Pons noted. “We’re not going to go out of business, but it certainly hurts.”

Julie Jennings owns Uniquities, a women’s clothing store also on West Franklin Street, and the building it’s located in. Its tax value was $263,700 in 2004. When reassessed in 2005, the value shot up to $480,000, an 82 percent increase. This year, the new tax value is $708,800, a 47 percent increase. Making matters worse, the assessed value of Jennings’ home went up around 50 percent too. She plans to challenge both.
Like Pons, she said the increased value won’t put her out of business, but it does put her in a squeeze.

“People are spending less money locally. It’s going to be challenging,” she said.
To soothe the sting of higher valuations in a down economy, County Commissioner Mike Nelson advocates a reduction in the property tax rate.
“Lowering the tax rate to be ‘revenue neutral’ is standard operating procedure for local governments,” said Nelson. “Local elected officials need to stick to our promise to adopt a lower, revenue-neutral tax rate.

“It’s a little early to say for sure exactly what the new tax rate will be, but the county’s current tax rate is just over 99 cents. A revenue-neutral rate might be, say, 87 cents. Lowering the tax rate will be good for our citizens.”

Editor’s note: The Citizen will follow the property owners in this article to see how their appeals come out.