Why Did My Home’s Land Value Double?
New assessments come with an unexpected change in how values were calculated.
Homes on S. Lenox St. in Bay View. Photo by Jeramey Jannene.
“Buy land. They’re not making it anymore.”
One could conclude that Mark Twain‘s investment advice was prescient after looking at their most recent assessment in Milwaukee.
Across the city, the assessed value of land spiked in the newly released valuations.
“This year, we were able to squeeze in enough time and resources to redo the residential land values,” said Steven Schwoerer, Assessor’s Office operations director, in an interview.
In some areas, like Bay View, the assessed land value more than doubled. In others, values on standard-size lots climbed only a few thousand dollars.
“We haven’t looked at it in a number of years,” said Assessment Commissioner Nicole Larsen.
“It’s the same methodology you use for an improved sale,” said Schwoerer. “You look at the sale of a vacant land, then you make adjustments for time and location, and then you set your valuations based upon that.” The land value is to be done first.
The city relied on the sale of approximately 70 vacant lots to calculate the values. “We went back two years… to keep it relatively current.”
The land valuations, said the Assessor’s Office, are used to inform the allocation between improvements (buildings) and the land in segmenting a total valuation. In some areas, the increase in land value was accompanied by a decrease in the value of the building(s) on the land.
The valuation of the land isn’t to be used to drive appeals, but it does help fairly value empty lots.
“Under state law, you can only appeal total value. You can’t appeal the land or the improvements separately,” said Larsen. “That allocation has no effect on their ultimate property tax bill.”
And understanding how an assessment impacts an individual property’s tax bill can be a bit complicated without understanding how Wisconsin law constrains property tax levies.
Assessments and property taxes are linked in a way that can be best compared to dividing up the check at a restaurant, a metaphor first offered several years ago by Ald. Scott Spiker. Assessments determine the portion of the property tax levy that each property owner will pay by calculating their share of the total. Both the tax levy and assessment processes are governed by state law, with the tax levy being effectively capped.
A very rough rule of thumb, which was temporarily invalidated last year when the Milwaukee Public Schools referendum increased the district’s tax levy, is that if an individual property’s value increases less than the citywide average, the property tax bill will not grow. A Wisconsin city cannot increase its revenue by boosting assessments, but the change in assessments does impact how much an individual property owner pays.
Citywide, property values climbed 15.4% last year. Commercial properties, including apartments, also grew faster than residential properties, shifting the share of the property tax levy borne by homeowners.
The assessment process is designed to determine the fair market value of a property. Governed by state law, the city’s assessment process relies on data from the sale of comparable properties and more than 140 assessor-defined neighborhoods. A software model compares properties and is mixed with data on property conditions, property style, size and other factors. The assessor does not visit each of the city’s properties. Properties can change in value even if the physical property didn’t change.
“Even if you didn’t do any improvements, you didn’t remodel, you didn’t rehab your property, your value can still go up because a comparable property in the real estate market is going for about that much. And so, if you can look at your value and if you can ‘you know, I could sell my property for where the assessor has it valued,’ then that’s a good indicator that the value is good,” said Larsen.
Schwoerer and Larsen, speaking late last week, said that the volume of appeals had been “normal.” More than 40 appeals had been formally filed.
Property owners have until May 19 to file an appeal through the “Open Book” process.
Larsen is scheduled to present to the Judiciary & Legislation Committee Thursday about the assessment process. The assessment process has drawn the attention of the Common Council because the average valuation change varied dramatically by district.
For more on the assessment process and the latest valuation, see our April column.
UPDATE: On Thursday, Larsen admitted that communication could have been improved around land value change and it was a case of being deep in an assessment “bubble” about what was perceived internally as a technical change. “It doesn’t affect the total value,” she clarified.
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“…if an individual property’s value increases less than the citywide average, the property tax bill will not grow.” The article correctly mentions the MPS referendum impact separately, but isn’t this statement not true because the council voted (like every year) to increase the property tax levy by the maximum amount allowed by law, 2%? If your property valuation matches the city wide average by percent, and we ignore MPS (significant increase again this year), county, and MATC impacts, then your property taxes would only go up by 2%.
@snowbeer – You’ve cut the critical caveat that it’s a “very rough rule of thumb.” Inflation is also a factor. All else being equal, if inflation is 3% and the levy goes up 2%, property owners end up paying an inflation-adjusted lower amount.
But your assessment that if your value went up in line with the citywide change, you would likely see a 2% real dollar increase is correct. I would need to pour over notes from past years, but net new construction gets factored into how that 2% value is calculated, and I don’t believe it is always exactly 2%.
And all of this, of course, ignores fees, which appear on a different bill and an increasingly large burden for property owners.
If last years tax bill was $10,000 and levy increased 2%, your tax bill only went up $200 ($16.667/month).
What Larson wants folks to understand (in my opinion), is that when the assessments increase 15%, that doesn’t mean your tax bill went up 15% [tax bill didn’t grow from $10,000 to $11,500 ($125/month)].
* The aggregate property taxes paid (the levy) can only increase by 2% year to year (absent a referendum where your neighbors voted for a greater increase).
It was always surprising to me that if my property value never changed even though if the building were suddenly not there, an empty lot would sell at the market value, which probably exceeds the actual value by 1000%.
Yes, land values go up. But one of the things about it is, it is hard to dispute the value of the land going up in any municipality. You can argue when your home assessment increases though the open book process, and you have not made physical additions or improvements. And even if you have, improvements are subjective based on who/where the assessment or improvement is. But when it comes to land…there is less to debate about. My guess is home or business owners don’t win as often over land value disputes and increases