Reassess Property Assessments in a Changed Market

As property owners here and around the country gaze in shock and awe at their new tax assessments, there is growing evidence that the price run-up behind those assessments is coming to an end.

One day late last month, the Wall Street Journal edition that circulates here ran more than 20 full pages of advertising for high-end houses and resort property. Closer to home, some of the free neighborhood weeklies in the area recently carried a 16-page, full-color insert from a big national brokerage advertising more than 200 houses and condominiums priced from around $300,000 to more than $10 million.

As newspapers have learned over the years, an upturn in real estate advertising is often the first sign of a downturn in the market. When real estate markets are hot, there isn't much need to advertise. When they slow, sellers turn to ads to try to keep things going. In major crashes, ads subsequently tail off as sellers give up or run out of money.

But when markets turn down, assessments typically haven't followed, at least until now.

History tells us that when home prices rise, so do assessments. But when home prices fall, assessments stay where they were.

Part of this stems from the way assessments and the market work.

The assessor's guide is the past. He looks at sales that have taken place, figures that they represent the value of nearby properties today and increases assessments accordingly.

But when the market slows, he has fewer and fewer new transactions to go by. And if prices actually turn down, many sellers pull their houses off the market, reducing the likelihood that sales reflecting the new reality will take place.

In the past, also, out of assessors' caution or political pressure, assessments tended to run below the market, particularly during periods of increasing prices. This gave assessors a cushion -- so if prices slipped a bit, it was unlikely they would fall below the assessed level. The result was a pattern of up, stop for a while, up again, stop again. Actual downs were as rare as Wall Street "sell" recommendations.

In recent years, however, assessors have grown more optimistic -- or more aggressive.

Rather than coming in slightly below what the actual market value might be, assessments often are at full value and then some.

For example, when Rockbridge County, Va., northeast of Roanoke, reassessed in the late 1990s, after years of not doing so, property owners who contested their valuation were simply asked, would you sell it for that? -- a question that produced a certain amount of hemming and hawing.