The Thoughts of One Over-Assessed Rental Propety Owner

This is helpful information for landlords that feel that their rental properties have been over-assessed and provides one landlord's view of the vicious cycle of over assessing rental property in certain areas of the city. I would like to thank Tim Ballering for allowing me to reprint his article on my blog.

The tax assessment appeal period will close on Monday the 16th at 4:45 PM.

You can get paper forms at the Assessor's Office in room 507, City Hall 200 E Wells, by phone at 414-286-3651or via the web by visiting: http://city.milwaukee.gov/assessor

On the bottom of the left hand panel click on "Ask the Assessor's Office." Then enter the name of the entity which owns the parcel, if different than your own name. Enter the address of the property, your email address, and in the "Question" box type "please send me an assessment appeal form." You will get the form back via email, usually within one day.

I recommend all owners who feel their assessed values are above what they could sell the rental property for today, to file a timely objection.

By objecting you retain your right to participate in any future litigation over the 2011 assessments. If you do not file an objection by May 16th, then you have accepted the city's valuation and have no further right to challenge the assessment and may not participate in or benefit from any future litigation over the 2011 assessments.

What is wrong with our assessments?

As I reviewed our property tax assessments over the past four years and compared those assessed values with both sales data and my knowledge of the market, I noticed a systematic pattern of over assessment of near Southside neighborhoods. Properties in these lower priced neighborhoods are assessed significantly above the cash equivalency sale prices of comparable properties sold in other neighborhoods. Others tell me the same is true in rental properties in Riverwest and on the Northside o fMilwaukee.

On a whim, I then looked at Milwaukee neighborhoods such as the far Southwest that are occupied by residents with higher than Milwaukee's mean income. The assessments in those neighborhoods more closely resembled the sales data and in some cases were sold for more than the assessed values.

The effect of an assessment scheme that overvalues lower priced housing, while undervaluing higher priced homes, is a regressive tax shift to lower income residents. The regressive nature of such tax shifts might be seen by some city leaders as acceptable social engineering (i.e. making it more favorable for those earning more to live within the city) nontheless, this is not a permissible use for inaccurate valuations.

While the excess tax in itself creates a burden to both owner-occupants and renters in these neighborhoods, the greater concern isfor the first-time home buyers who relied on assessments as an accurate indicator of value. When you use overvalued assessments to judge whether or not you are getting a fair deal, you will be tricked into overpaying. The over assessments then “propped up” purchase prices that were then used to further support over assessments. An ugly cycle of deceit in the name of balancing a city's budget.

Today these over assessed neighborhoods have a high number of delinquencies, foreclosures, short sales and abandoned homes. This causes the values to continue to drop, taking with it the accumulated wealth of a generation, and scaring the next generation of potential homeowners away -- ‘Mom and Dad tried buying a house back in 2006 and lost everything. I’ll never do something that stupid."

For renters, real estate taxes consume a growing share of their monthly rent. For homeowners, taxes represent a significant portion of their monthly mortgage check. The economic impact of this on a specific segment of the community is staggering.

Of course the Assessor has an appeal process outlined above. To succeed one must have an appraisal in hand and an appraiser willing to attend the board hearings. For small properties, the cost of appraisals and paying the appraiser to appear at the Board of Review exceeds the anticipated tax savings for most properties. Added to this is that the the Assessor's Office makes it difficult to obtain the information one needs to challenge their numbers. For example, the Assessor requested $900 to provide assessment data that contains their grade rating system for comparable properties. These unrecoverable costs allow improper assessments to prevail and further support over payment by unsophisticated first time homebuyers. Clearly inaccurate assessments contributed greatly to the subprime mortgage mess and the harm it caused to homebuyers in the past.

What can be done about it?

So the right answer probably is for property owners in lower valued neighborhoods to demand a general review of the disparity in valuations between what they could expect to receive if they sold today and the value the Assessor has placed on the property. Only those who have filed an appeal could legally benefit from any litigation unless the State Department of Revenue were to find the process so flawed that they stepped in.

I think this needs to be explored in greater depth. Sale data and assessed values are easy to obtain through MLS and the Assessor's website. It would be very interesting to have someone, perhaps a UWM or Marquette student or professor, do a statistically correct analysis to prove or disprove my theory that the lower valued neighborhoods are over assessed at a far greater rate than higher valued areas such as the far Southwest, Eastside, and Northwest areas of Milwaukee.

Tim Ballering